A freelancer can spend ₹70,000 on a laptop, pay for internet every month and work from a rented room—and still pay too much income tax if those costs are not recorded correctly. But calling an expense “business-related” does not automatically make it deductible. You need to know what the expense was for, which method you use to calculate taxable profit, and whether a statutory restriction applies.
For Tax Year 2026–27 (1 April 2026 to 31 March 2027), the Income-tax Act, 2025 applies. If you are preparing a return for FY 2025–26 / AY 2026–27, the Income-tax Act, 1961 remains the relevant law. This guide focuses on Tax Year 2026–27 and includes familiar references such as Sections 37, 32, 44AD and 44ADA of the earlier Act to help you recognise the rules.
Which tax deductions can self-employed people claim?
Under the normal profit-computation method, a self-employed person may deduct genuine revenue expenses incurred for business or professional purposes and may claim prescribed depreciation on eligible business assets. This generally applies whether the individual chooses the old or new personal tax regime. It is separate from personal tax-saving deductions such as life insurance or health insurance, which have different regime-specific rules.
| Expense or deduction | Normal business-profit method | Eligible presumptive scheme | Key point |
|---|---|---|---|
Office rent, utilities and subscriptions | Generally deductible to business-use extent | No separate deduction | Retain bills and business-use evidence |
Staff and contractor payments | Generally deductible, subject to applicable tax rules | No separate deduction | TDS and payment restrictions can matter |
Business travel and marketing | Generally deductible if properly supported | No separate deduction | Personal travel is not a business deduction |
Laptop and equipment | Generally through depreciation rather than immediate full deduction | Deemed covered | Depreciation is calculated by asset block |
Personal deductions such as 80C / 80D | Depend on chosen personal tax regime | Depend on chosen personal tax regime | Distinct from computing business profit |
Under Section 58 of the Income-tax Act, 2025, an eligible presumptive taxpayer cannot add the usual business expenses or depreciation again on top of the deemed-profit calculation. This is one of the easiest ways to overstate tax deductions.
The legal starting point is Section 34 of the Income-tax Act, 2025 Official ↗, which carries the general business-expense test. The earlier equivalent was Section 37(1) of the 1961 Act Official ↗.
12 common business expenses you can consider claiming
You do not need an impressive office or a registered company to have legitimate business costs. What matters is the connection with earning your business or professional income and the applicable evidence.
1. Rent, workspace and utilities
Rent for a work studio, shop or co-working desk may be deductible. Electricity, repairs and certain other occupancy costs may also qualify. If you work from home, claim only a reasonable, supportable business-use share rather than your entire family's rent and household bills. Section 28 of the 2025 Act deals with several premises-related deductions.
2. Internet and mobile bills
A web developer may need reliable broadband and a separate business SIM. A consultant may use a single mobile phone for both personal and client calls. In the second case, retain a reasonable allocation method and avoid deducting the personal portion.
3. Software, hosting and digital tools
Business-use subscriptions—accounting software, domain renewal, email hosting, design tools, cloud storage and client-management platforms—may be revenue expenses. A one-off purchase creating a capital asset may have different treatment, so distinguish recurring subscriptions from depreciable software or equipment.
4. Salaries, freelancers and subcontractors
Payments to employees, bookkeepers, assistants, designers and other contractors can be business expenses when properly incurred and supported. Do not overlook TDS, payroll and statutory-payment rules: a genuine expense may still be disallowed or deferred if the law's conditions are not met.
5. Advertising and customer acquisition
Search ads, printed brochures, marketplace charges, business cards and marketing agency fees can qualify where they relate to the business. Keep the invoices or advertising-account statements that show who was paid and why.
6. Business travel and client meetings
Train tickets, hotels and necessary transport for actual business trips can be considered. A family holiday cannot become deductible simply because you answered two client calls during the journey. For a mixed-purpose trip, distinguish the business share with contemporaneous records.
7. Professional fees and subscriptions
Payments to accountants, lawyers and other advisers for your business can generally be considered. Business-related professional memberships and necessary technical publications may also be relevant, subject to their character and documentation.
8. Bank charges and borrowing costs
Payment-gateway fees, business bank charges and interest on borrowing used for business may be deductible, subject to restrictions and the distinction between revenue and capital expenditure. Repayment of loan principal is not the same as deductible loan interest.
9. Business insurance
Insurance relating to business assets and appropriate professional-risk cover can be relevant. Personal life insurance is not a business-expense deduction merely because the insured person is self-employed; it is assessed under the separate personal-deduction rules, if eligible.
10. Repairs and maintenance
Necessary repairs to existing equipment and premises may be revenue expenses. Upgrading a machine or creating a new long-lived asset may instead be capital expenditure.
11. Training and work-related learning
Fees for updating skills directly connected to an existing profession may qualify depending on their purpose and nature. An entirely new qualification or personal-interest course should not automatically be claimed as routine business expenditure.
12. Motor-vehicle running costs
Fuel, tolls, maintenance and related expenses may be considered to the extent the vehicle is used for business and supported by records. The vehicle's purchase price is generally a capital item, with depreciation rules applying when eligible.
For the statutory starting point, review Sections 28–34 of the 2025 Act Official ↗. An expense's name alone is not proof of deductibility: purpose, proof, business use and legal restrictions decide the outcome.
How to calculate a home-office deduction without guessing
Consider a freelance designer who rents a three-room flat for ₹24,000 per month. One room is used primarily as a dedicated studio. The household's electricity bill is ₹3,000 per month and broadband costs ₹1,200 per month.
It would be careless to deduct the entire rent. Instead, the designer should document actual usage. For illustration only, assume a justifiable 25% business allocation of rent and electricity, while 80% of broadband usage is demonstrably business-related.
| Item | Monthly cost | Supported business allocation | Monthly business amount |
|---|---|---|---|
Rent | ₹24,000 | 25% | ₹6,000 |
Electricity | ₹3,000 | 25% | ₹750 |
Broadband | ₹1,200 | 80% | ₹960 |
Total | ₹28,200 | — | ₹7,710 |
That is an illustrative ₹92,520 over 12 months, assuming the arrangement and usage remain unchanged. It is not an official flat deduction, and claiming it depends on the facts, evidence, applicable law and method of accounting. Keep rent records, bills and a simple note explaining the allocation.
If you own the premises or use one room for both family and work, the analysis may be different. Claiming depreciation on a residential property's business-use portion can carry additional consequences and warrants individual advice.
Laptop, computer and furniture depreciation in 2026–27
A frequent mistake is to record every equipment purchase as a current operating expense. Tax depreciation usually follows the written-down-value (WDV) block-of-assets method. Under the 2025 Act, see Section 33 Official ↗; the older equivalent is Section 32 of the 1961 Act.
| Asset class | Indicative ordinary WDV rate* |
|---|---|
| Computers, including qualifying computer software | 40% |
| General plant and machinery | 15% |
| Furniture and fittings | 10% |
| Ordinary business-use motor cars (subject to classification and exceptions) | 15% |
*Rates depend on the prescribed block, usage and exceptions. Check the Income Tax Department's official depreciation-rate table Official ↗.
A laptop bought late in the year: worked example
Assume a self-employed professional acquires a business-only laptop for ₹1,50,000 in November 2026, puts it to use immediately, and has no other asset in that depreciation block.
- Applicable illustrative computer-block rate: 40% WDV.
- If first used for fewer than 180 days during the tax year, the first-year deduction is limited to half the normal rate: 20% × ₹1,50,000 = ₹30,000.
- Closing illustrative WDV after that deduction: ₹1,20,000.
- If the block remains unchanged, a subsequent full-year 40% deduction could be ₹48,000, subject to the rules then applicable.
This is a simplified block-level calculation. Existing assets, disposals, GST input-credit treatment and partial business use can change the result.
Old tax regime vs new tax regime: which deductions survive?
The new tax regime is the default for eligible individuals, but an eligible taxpayer can opt for the old regime under prescribed rules. The 2025 Act places the new regime in Section 202, corresponding to the former Section 115BAC. For someone with business or professional income, switching between regimes is subject to special restrictions and filing procedures; do not assume you can toggle freely every year.
| Item | Old regime | New regime |
|---|---|---|
Actual eligible business expenses | Generally allowed | Generally allowed |
Business depreciation | Generally allowed | Generally allowed, subject to regime restrictions |
80C-type eligible savings / insurance deduction | Available, subject to limits | Generally unavailable |
80D-type eligible health-insurance deduction | Available, subject to limits | Generally unavailable |
Additional own NPS contribution deduction (old 80CCD(1B)) | Available, subject to conditions | Generally unavailable |
Ordinary slab-income rebate | Different eligibility / lower threshold | Higher rebate for eligible resident individuals, with exclusions |
The commonly discussed ₹12 lakh rebate threshold relates to qualifying resident individuals under the new regime and eligible normal-rate income; it is not a promise that every kind of income up to ₹12 lakh is tax-free. Income taxed at special rates and other conditions need separate checking.
Read TaxQue's old vs new tax regime comparison and use the Income Tax calculator as an estimate—not as a substitute for a filed computation. For the current statutory framework, consult the Income Tax Department's 2025 Act information page Official ↗.
Presumptive taxation: when 44AD or 44ADA replaces expense claims
The old-law labels Section 44AD (eligible businesses) and Section 44ADA (specified professions) are widely searched. For Tax Year 2026–27, the relevant rules are consolidated under Section 58 of the Income-tax Act, 2025.
| Scheme | Who may qualify | Receipt / turnover limit | Deemed profit |
|---|---|---|---|
Former 44AD; Section 58 business category | Eligible resident individuals, HUFs and firms other than LLPs, engaged in eligible businesses | Generally ₹2 crore, rising to ₹3 crore if cash receipts do not exceed 5% | Generally 8%; 6% for qualifying banking/digital receipts |
Former 44ADA; Section 58 specified-profession category | Eligible resident individuals and firms other than LLPs in specified professions | Generally ₹50 lakh, rising to ₹75 lakh if cash receipts do not exceed 5% | At least 50% of gross receipts, or higher actual profit if claimed |
Cash-threshold conditions, eligibility exclusions, payment timing and deemed cash treatment of non-account-payee cheques are detailed in Section 58 Official ↗. Not every freelancer qualifies for professional presumptive taxation. Section 62(4) identifies professions including legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, information technology, company secretary and others notified by the Board. A job title such as “content creator” or “freelance designer” does not by itself settle eligibility.
Example: freelancer receipts of ₹18 lakh
Imagine two eligible professionals each earn ₹18,00,000 in gross receipts during the year.
| Computation | Professional A: normal method | Professional B: eligible presumptive method |
|---|---|---|
Gross professional receipts | ₹18,00,000 | ₹18,00,000 |
Supported actual business expenses | ₹4,00,000 | Not deducted separately |
Income from profession before personal deductions | ₹14,00,000 | ₹9,00,000 (50% of receipts) |
This example demonstrates the business-income computation, not the final tax due. The person choosing presumptive treatment must meet eligibility conditions, and other income, regime choice and rebates can change the tax. Professionals cannot simply deduct the ₹4 lakh of actual expenses again from the ₹9 lakh deemed income.
When actual expenses exceed the presumed allowance
If a professional's supported actual expenses are ₹11 lakh against ₹18 lakh of receipts, the normal-method profit would be ₹7 lakh. Claiming lower profit than the applicable presumptive minimum can trigger record-keeping and audit requirements when the statutory conditions apply. Have the numbers reviewed instead of automatically assuming the lower method is available without compliance consequences.
A separate five-year lockout consequence can apply under the eligible-business presumptive scheme when its statutory conditions are breached. The business and professional schemes should not be treated as identical.
See ITR filing for freelancers for return-form guidance.
Expenses that are commonly disallowed or challenged
Some costs are connected to business but still fail a deduction rule.
- Personal spending disguised as office expenses: household groceries, family trips and ordinary personal clothing are not deductible business expenses merely because you operate from home.
- Capital assets claimed as recurring expenses: a new machine or business-only laptop commonly requires depreciation treatment rather than an immediate ordinary-expense deduction.
- Cash payments exceeding the statutory limit: the familiar ₹10,000-per-person-per-day restriction on certain non-prescribed payment modes has exceptions and special cases. Verify the specific provisions and payment method before claiming.
- Payments with TDS non-compliance: deductions can be restricted or deferred where tax was required to be withheld and the relevant rules were not followed.
- Fines and unlawful payments: an expense for an offence or something prohibited by law does not qualify merely because it arose in the course of business.
- Unsubstantiated mixed-use spending: costs shared between family and business need a reasonable allocation and proof.
- Double deductions under presumptive taxation: deemed-profit schemes ordinarily cover the corresponding business expenses and depreciation already.
Consult the official Income-tax Act, 2025 Official ↗ and the Income Tax Department's cash-expense guidance Official ↗ for background; the latter discusses the earlier-law section numbering, so the current Act must be used for a 2026–27 computation.
Records to keep before you claim deductions
Good record-keeping is more useful than searching for an extra deduction in March. Organise your invoices and transactions by category throughout the year.
- ○ Client invoices and statements of receipts, including UPI, gateway and overseas payments where relevant
- ○ Business bank and payment-gateway statements
- ○ Rent agreement, utility bills and a written basis for home-office allocations
- ○ Software, advertising, internet and equipment purchase invoices
- ○ Employee, consultant and contractor payment records; TDS reconciliations where applicable
- ○ Asset purchase dates, first-use dates and depreciation-block schedule
- ○ Tax payment challans, AIS/Form 26AS information as applicable, and last year's return
- ○ Documentary evidence for any personal deduction claimed under the chosen regime
A clear audit trail makes it easier to answer a query or notice. It also helps you compare actual-profit and presumptive methods with figures you can defend.
A practical workflow before filing your return
Six checks before you file
-
Identify the correct year
Separate Tax Year 2026–27 under the 2025 Act from FY 2025–26 / AY 2026–27 under the previous Act.
-
Categorise receipts
Reconcile invoices, bank credits, payment gateways and tax information statements.
-
Classify expenses
Distinguish business and personal use, capital assets and recurring costs.
-
Test presumptive eligibility
Check whether your business or profession qualifies under Section 58 and whether thresholds and other conditions are met.
-
Compare tax regimes
Consider the new regime, old-regime deductions, and restrictions on changing your option.
-
Reconcile and file
Review depreciation, TDS, advance tax and the appropriate return form before submitting and verifying.
Where advance tax applies, check the current timetable. Under the familiar qualifying presumptive schemes, payment is generally made in one instalment by 15 March; other taxpayers generally follow quarterly instalments. Applicable rules, tax liability and any amendments must be checked before payment.
Bottom line: claim real costs, not every cost
Self-employment does not mean your business income is taxed on every rupee received. If you use the normal computation method, legitimate operating costs and eligible depreciation can reduce profit before personal tax is calculated. But the tax regime, presumptive eligibility, expense documentation and statutory restrictions can change the result substantially.
Before filing, spend time separating personal from business costs, reconciling payments and comparing the actual-profit method against any presumptive method for which you genuinely qualify. TaxQue's ITR-3 filing service is an option if you need help preparing a business-income return. You can also review tax deductions for individuals to understand personal deductions separately from business costs.
Official sources used for this guide
- Income Tax Department — Income-tax Act, 2025 and Rules, 2026 Official ↗ (current law and transition resources).
- Income-tax Act, 2025, Section 58 — Presumptive business and professional income Official ↗.
- Income-tax Act, 2025, Section 62 — Books of account and specified professions Official ↗.
- Income-tax Act, 2025, Section 28 — Premises, repairs and insurance Official ↗.
- Income-tax Act, 2025, Section 33 — Depreciation Official ↗.
- Income-tax Act, 2025, Section 34 — General conditions for allowable deductions Official ↗.
- Income Tax Department — Appendix I depreciation rates Official ↗.
- Income Tax Department — Transition from the 1961 Act Official ↗.
Editorial update: 17 October 2026. Examples are illustrative, not individualized tax advice. Verify late notifications and the facts of each claim when preparing a return.
