Working on your own time and space opens up a number of possibilities, which is probably why being self-employed is gaining immense popularity in India. While the convenience of being your own master cannot be denied, figuring out your taxes can be pretty difficult. Do you have to pay the same taxes as a salaried individual? Or maybe the taxes of a business? Most importantly, what tax deductions are you eligible for?

Read on for answers to all your questions about self-employment tax 2015.

How are self-employed professionals taxed?

Any individual who earns an income above Rs.2,50,000 per annum, regardless of the source, is liable to income tax. If you’re self-employed, all the income that you earn is taxable as the profits or gains of a business or profession.

So the self-employment tax rate is the same as the income tax rate for any working individual.

What tax deductions are you eligible to?

Tax deductions help you minimize the self-employment tax you have to pay. Here’s a list of the deductions that are permissible under the Indian taxation law.

Work premises

Rent, insurance, electricity and water bills, repairs and other expenses in the place that you work from can be deducted from your total taxable income. This is likely your home, or it could be a separate space. So long as you conduct your work there, you can deduct the amount you spend on that house or office.

Business expenses

Any amount of money that you spend towards furthering your business is deductible from your taxable income. This includes everything from research expenses, client meetings, contributions made to colleges and universities and so on.


If you hire employees or even freelance consultants, the salaries and wages you have to pay for their services can be filed for tax returns.


If your profession involves a lot of travelling, then a majority of your expenses will be spent on petrol or your mode of transport. This amount is also counted as tax deductible.


If you’re spending money on a provident fund or other plans to build a retirement fund for yourself, you can include these in your income tax deductions. As long as the funds you’re spending on are approved by the government, the amount you pay can be deducted from your taxable income.

Business Loan

If you take out a small business loan, the interest you have to pay can be deducted from your total taxable income. While looking for a business loan, research thoroughly to find the perfect one for you, since there are NBFCs like Bajaj Finserv who offer Business Loan with tons of benefits like online account access, nil foreclosure charges, etc.

Transaction taxes

Taxes on things like banking transactions, commodities transactions and securities transactions are all classified as business expenses that can be deducted from your taxable income.

Bad debts

If you haven’t received payment for your goods and services or have gone into a loss, then you can indicate these in the year that you’re filing for returns as ‘non-recoverable’ and the amount will be deducted from your taxable revenue.

Depreciation of assets

A part of your expenses on assets that you use for work like laptops, cars, or mobile phones can be claimed under tax returns. The total expenditure you have incurred is spread across the ‘life’ of the product that is determined by the government.

So on a phone worth Rs.15,000, if the life is about 3 years, then you’ll be able to claim about Rs.5000 in a year.
It is important that you remember to have detailed invoices for all your expenses so that you can offer proof of your expenses when filing your tax returns.

How to file your tax returns

For self-employed professionals, the tax return form is the ITR 4, which can be filed online with a digital signature or in person.

As you can see, self-employment tax is essentially a tax on the revenue you earn. But, there are a number of tax deductions available for you as well, so if you’ve been considering a business loan, remember that the interest is deductible.

This means that if you get a loan , which offers pre-payment facilities like the one from Bajaj Finserv your expenses on the loan will be negligible, and you can further your business with ease. (Also Read: what is advance tax and its penalties? )

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