You are your own boss Self-employment can be an interesting proposition as you g et to play your own boss.

Not just that, a self-employed person can also have in come that is more tax efficient by at least 15% as against similar salary income . Under the tax laws, the income of a self-employed person (freelance writer/jou rnalist, independent consultant, businessman , professional) would fall under th e head of income from business or profession. If you are self-employed , here ar e a few tips that will help you enhance your tax efficiency. Take full advanta ge of all business expenses All your work/business related expenses can be claim ed as business expenses. Vouchers/bills would be required to support expenses an d hence book keeping is important for this category. A variety of expenses inclu ding rent or home office expense, travel costs, communication costs (telephone, internet), business meetings, supplies and utilities can be claimed as expenses. For being deductible , expenses must be both ordinary (common and accepted) and necessary (appropriate and helpful) in your work/business. If such expenses are incurred partly for work purposes and partly for personal purposes, you can ded uct only the workrelated portion. One can also claim depreciation on work relate d assets like laptops/computers , furniture, UPS and vehicles. Hence bills of ca pital expenditures should also be maintained. Bad business debts may also be wri tten off. Losses can also be carried forward for 8 years. Distribution of inco me If you have family members who can help in various aspects of your business , it makes sense to employ them (legitimately ) and offer an appropriate remunera tion . By hiring a family member to work, you will effectively shift a part of y our income to your relative. Your business can take a deduction for reasonable c ompensation paid to an employee , which in turn reduces the amount of taxable bu siness income that flows through to you. One can also form a Hindu Undivided Fam ily (HUF) as a separate entity, which helps further distribute income to this en tity as well. Availing deductions Normal deductions are allowed for self-emplo yed individuals . Section 80C allows investments in PPF (Public Provident Fund), insurance /unit linked insurance plans, pension plans, ELSS (equity linked savi ngs scheme), NSC (National Savings Certificate), infrastructure bonds, FDs (fixe d deposits ) apart from home loan principal repayment. Tuition fees for your chi ld s education can also be claimed. The overall limit of this section is Rs 1 lakh. Section 80D provides deduction for medical insurance premiums of oneself and fam ily upto Rs 15,000. An additional Rs 15,000 can be claimed towards medical premi ums of parents. If you are staying in a rented home you can claim the rent paid as deduction u/s 80GG, upto Rs 24,000, based on certain conditions. If you buy a house, you can claim a deduction of upto Rs 1.5 lakh on interest paid. Hedge your risk & save taxes It is important to have appropriate life insurance cover to offer protection for family, especially since there would be no benefits from the company (if one were salaried) that would have accumulated . If you have li abilities, cover your insurance policy under the Married Women s Property Act, so th at the proceeds of the policy cannot be attached in case of inability to repay l oans. Avail a family floater policy with reasonable cover to protect your family from any major medical costs that might arise. The premiums paid towards life a nd health policies will provide for tax breaks u/s 80C and 80D. TIPS A self em ployed person can enjoy great tax efficiency if his/her finances are well planne d. Remember to avail of depreciation benefits on capital expenditure. Look at wa ys of distributing income within the family and by using the HUF structure. Give priority to tax saving avenues that have the one time payment option and avoid large commitments if your income is irregular. Read more at: http://www.caclubindia.com/forum/tax-planning-for-self-employed-25 380.asp#.UuqfNNKSxBk

The Income Tax Act states, 'Profession implies apparent achievement in special k nowledge as distinguished from mere skill, special knowledge has to be acquired only after study and application.' It covers doctors, lawyers, engineers, architects, accountants, consulting engin eers, artists, musicians, singers and interior decorators, et cetera. These prof essionals also need to file their taxes. How is tax accounted? Mercantile system: Here net profit or loss is calculated after taking into consi deration all income and expenses of a particular accounting period irrespective of whether or not income was received or expenses paid during that accounting pe riod. Cash system: Here a record has to be kept of actual receipts and actual payments of a particular year. Click NEXT to read on. . .

Permissible deductions: Rent, rates, taxes, repairs and insurance of premises utilized for the professio n. Repairs, depreciation and insurance of machinery, plant and furniture utilized f or the profession. Expenditure in respect of scientific research, like in-house research, contribut ion to an approved university, college, or association, etc. Premium in respect of insurance against risk of damage or destruction of stock a nd stores used for profession. Premium in respect of health insurance of the employees. Bonus and commission to employees. Interest on capital borrowed for profession. Contribution to a recognised provident fund or an approved gratuity fund. Bad debts related to the profession. -- Bad debts have to be written off as 'una ble to recover' in the books by the assessee in the previous year. Banking cash transaction tax, securities transaction tax and commodities transac tion tax are allowed as deductions. Any expenditure (not capital and personal) incurred wholly and exclusively for t he profession and within the legal rules. Click NEXT to read on. . .

Expenses not allowed as deduction are: Expenditure on advertisement in any souvenir, etc. of a political party. Any interest, salary, royalty, fees for technical services or other sum payable outside India from which TDS as not been deducted. Any tax calculated on the basis of profits or gains of profession, e.g. income t ax; Wealth tax. Expenses exceeding Rs 20,000, e.g.: X pays Rs 6,000 Rs 20,000 and Rs 20,500 by a ccount payee cheques.

As per income tax, Rs 20,500 paid by bearer cheque will be disallowed. Hence, it is best to pay amounts exceeding Rs 20,000 by cheque. Click NEXT to read on. . .

Things to keep in mind Book-keeping requirements Case 1: If the gross receipts are less that Rs 1.50 lakh (Rs 150,000), the asses see has to maintain his accounts which enables the Income Tax official to comput e the taxable Income. Case 2: If the gross receipts exceed Rs 1.50 lakh, the assessee has to maintain books of accounting like the cash book, journal, ledger, copies of bills exceedi ng Rs 25. Accounts should be maintained either on mercantile basis or cash basis . In case of professional income, accounts have to be audited if gross receipts ex ceed Rs 10 lakh (Rs 1 million). This audit report should be submitted along with the income tax return, before September 30. PAN: Every person whose total sales, turnover or gross receipts are over Rs 500, 000 are required to apply and obtain a Permanent Account Number (PAN). Click NEXT to read on. . .

Advance tax: Since a professional earns his own income, there is no TDS. Hence, he is liable to pay advance tax as he earns income. Thus, advance tax is payable on the basis of estimated income of the current financial year. Advance tax is payable only in cases where tax payable is in excess of Rs 5,000. Payment of advance tax: 30% on or before September 15. 30% on or before December 15. Remaining 40% on or before March 15. If there was shortfall in earlier installment, it should be made up in subsequen t installment Due dates for filing returns: Assessee having income from profession but who do not have to get the accounts a udited under Income Tax or any other law has to file returns by 31st July. Assessee who gets his accounts audited has to file returns by September 30. Return Form : Form ITR 4 needs to be utilized to file returns and can be submitted to either i

n the physical form or in the electronic form with a digital signature.