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


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.

asked Oct 19 '12 at 10:01 by Phani R 2216713

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.

answered Oct 19 '12 at 10:29 by Pankaj Batra 5.2k320

Dear Pankaj, Is it required to get a TAN, if we pay salary to anybody else for doing the work.
(Mar 20 '15 at 17:29) subhra44
In case you need to deduct TDS on payments, you need TAN.
(Mar 22 '15 at 02:35) Pankaj Batra
A great question ...and well answered....but I want to add one more can go for HUF option also for saving more confirm if I am wrong.
(Apr 03 '15 at 09:05) sakiv1089

Know someone who can answer? Share a link to this question via Email, Twitter, or Facebook

Your answer
toggle preview

Follow this question

Once you sign in you will be able to subscribe for any updates here

Markdown Basics

  • *italic* or __italic__
  • **bold** or __bold__
  • link:[text]( "title")
  • image?![alt text](/path/img.jpg "title")
  • numbered list: 1. Foo 2. Bar
  • to add a line break simply add two spaces to where you would like the new line to be.
  • basic HTML tags are also supported



Asked: Oct 19 '12 at 10:01

Seen: 11,175 times

Last updated: Apr 03 '15 at 09:05