Better way to work as freelancer in addition to day job from tax perspective

Phani R 221
Viewed 10298

Hi,

I have a day job and file taxes normally. In addition i am planning to work as a freelancer with another company in free time. The company suggests opting for payment as a consultant as it will be optimum for me from tax angle as i can deduct all expenses incurred in running business like internet, phone, electricity bills, computer purchase etc. Few questions related to this: 1.If after deduction, i have a positive income, what rate is applicable on this? Is this clubbed to my original day job income?

  1. Can i hire somebody else or outsource/offload work to someone - say like a family member and pay them money ? Does this involve me to setup company/register with any govt agency etc?

Thanks a lot as always for your help.

consultant-income professional-income freelancer consultant itr-4
1 Answers

Company is right is suggesting to take payment as a consultant. It provides provision for minimizing income tax on payment however make return filing complex.

You will have to maintain profit/loss accounts and deduct all business expenses like internet, phone, hardware purchase (depreciation may apply) etc. from business income. Thus overall income after deducting these heads may be pretty small compared to income and hence less tax would be payable on it.

Tax rate for business income is also same as other income like salary. If you have taxable income X from salaries and Y from business. Total income tax would be computed on X+Y as per normal tax slab rates (after all deductions like 80C, 80C etc.)

You can pay salary to anybody else for doing the work. There is no need to setup a company for same. This would also be deducted from business expenses.

There are n number of tricks to avoid tax on business income. Paying salary to anybody else, deducting business expenses etc are just some of them. But more complex return becomes, more chances of getting called by IT department for scrutiny. So make sure whatever you declare as business expense in return, you should have a solid payment proof for same.

Pankaj Batra5212

Dear Pankaj,

Is it required to get a TAN, if we pay salary to anybody else for doing the work.

subhra44•

In case you need to deduct TDS on payments, you need TAN.

Pankaj Batra•

A great question ...and well answered....but I want to add one more way...one can go for HUF option also for saving more tax....pl confirm if I am wrong.

VIKAS SINGHAL•
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