Tax Deductions for the Self-Employed in India: What You Can Claim

The tax benefits for self-employed people come from three places: business expenses, depreciation on equipment, and (in the old regime) personal deductions. Expenses you incur wholly and exclusively for your business or profession reduce your taxable profit, whichever regime you choose. Typical examples:

• Office or co-working rent, electricity, maintenance
• Internet, mobile and software subscriptions used for work
• Salaries and fees paid to staff, assistants and subcontractors
• Professional fees: accountant, lawyer, designer
• Travel for work (client visits, conferences), with bills
• Marketing, website hosting, advertising
• Interest on loans taken for the business, and bank charges
• Insurance on business assets, professional indemnity cover
• Books, courses and memberships that relate to your work

Personal expenses are not deductible, nor are fines and penalties. Two traps catch many people: cash payments of more than ₹10,000 to one person in a day are disallowed, and expenses on which you should have deducted TDS but didn't are partly disallowed.

You don't deduct the full cost of a laptop or furniture in the year you buy it. You claim depreciation each year at set rates on the written-down value:

An asset used for less than 180 days in the year gets half the rate in that year. Example: a ₹1,50,000 laptop bought in November gives ₹30,000 (20%) in year one, then 40% of the remaining ₹1,20,000 (₹48,000) the next year.

If part of your home is used for work, you can claim a reasonable proportion of rent, electricity and internet. Base it on something you can defend, such as one room out of three, rather than a round guess. Keep the rent agreement, bills and a short note of how you worked out the share. If the house is owned, depreciation on that portion is possible in principle but complicates things later. Most people simply claim running costs.

The new regime has lower slab rates and a bigger rebate, so many self-employed people with modest personal investments pay less under it. Business income earners can switch regimes only in limited circumstances, so compare carefully. See old vs new tax regime, the top income tax deductions and the income tax calculator.

• Professionals (section 44ADA): declare 50% of gross receipts as income, with no separate expense claims, if receipts are up to ₹75 lakh (where cash receipts are within 5%) or ₹50 lakh otherwise.
• Small businesses (section 44AD): declare 6% of digital turnover and 8% of cash turnover, if turnover is up to ₹3 crore (cash within 5%) or ₹2 crore otherwise.

Presumptive tax suits you if your real expenses are below the deemed share, such as a consultant whose costs are 20% of fees. If your expenses are higher, keep books and claim actual expenses. Either way, pay advance tax: presumptive taxpayers pay it in one instalment by 15 March (see how to pay advance tax). Filing for freelancers is covered in ITR filing for freelancers. TaxQue's ITR-3 filing service prepares the profit and loss account, depreciation schedule and regime comparison for you.