Cheapest Way to File Taxes for Self-Employed Individuals

Filing taxes as a self-employed individual can be overwhelming, but it doesn’t have to be expensive. By understanding the right ITR forms, tax schemes, and cost-effective filing options, you can simplify the process and save money. With the right approach, self-employed taxpayers can benefit from available rebates and deductions that reduce their overall tax burden.

The cheapest way to file your taxes as a self-employed individual is by opting for the Presumptive Taxation Scheme under Section 44ADA (if eligible) or choosing TaxBuddy's DIY filing plans, which are affordable and provide a hassle-free filing experience. Presumptive taxation eliminates the need for detailed accounting and reduces filing complexities, making it one of the most cost-effective options for freelancers and small businesses.

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Table of Contents

• Tax Filing Options for Self-Employed Individuals

• How to Leverage TaxBuddy for Affordable Filing

• Section 87A vs Standard Deduction: Maximizing Your Tax Benefits

• Taxability of Online Gaming Winnings for Self-Employed Individuals

• Summary & Recommendations for Self-Employed Taxpayers

• Conclusion

• FAQS

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Tax Filing Options for Self-Employed Individuals

Choosing the Right ITR Form and Taxation Scheme

For self-employed individuals, the choice of ITR form is crucial, as it determines how their income and deductions are reported to the Income Tax Department. Depending on your profession and income structure, two ITR forms are most commonly used: ITR-3 and ITR-4.

• ITR-3: This form is for individuals and Hindu Undivided Families (HUFs) who are engaged in a business or profession. If you are a self-employed professional who is not opting for presumptive taxation, this form will be applicable. It allows you to report income from your business or profession, as well as income from other sources like salary, property, or capital gains.

• ITR-4: This form is designed for taxpayers opting for the Presumptive Taxation Scheme under Section 44ADA of the Income Tax Act. It is suitable for self-employed professionals such as consultants, lawyers, doctors, and freelancers whose total turnover does not exceed ₹50 lakhs. The income is presumed to be 50% of the total gross receipts or turnover, simplifying the process by eliminating the need for detailed accounting.

Benefits of Presumptive Taxation for Self-Employed

The Presumptive Taxation Scheme under Section 44ADA is highly beneficial for self-employed individuals. Here’s why:

• Simplified Compliance: Under this scheme, self-employed professionals can avoid the tedious process of maintaining detailed books of accounts. Instead, 50% of the total gross receipts or turnover is presumed as income, and the tax is levied on that amount.

• Lower Filing Costs: Since the scheme simplifies accounting requirements, it reduces the cost of hiring accountants or using complex accounting software. Self-employed professionals can file taxes at a much lower cost compared to those who need detailed bookkeeping.

• No Audit Requirement: If your gross receipts or turnover are within the ₹50 lakh limit, there is no requirement to get your accounts audited. This eliminates the need for external auditors and associated costs.

• Easy to Understand: The scheme is straightforward and beneficial for self-employed professionals who have a steady flow of income but prefer a simpler tax filing process. The ITR-4 form, specifically designed for this scheme, is simple to fill out, making it an attractive option for those who qualify.

How to Leverage TaxBuddy for Affordable Filing

Understanding TaxBuddy's Pricing Plans

TaxBuddy offers a range of affordable tax filing plans designed to cater to the needs of self-employed individuals. Here’s a breakdown of the pricing plans available:

• DIY Filing Plan (₹699): Ideal for individuals with straightforward tax returns, this plan allows you to file your taxes independently through TaxBuddy’s platform. It’s perfect for self-employed professionals who don’t require much assistance but still want the guidance and structure of a secure platform.
  

• DIY Business Plan (₹1,599): This plan is tailored for self-employed individuals and small businesses, offering the tools needed to file business and professional income without needing an audit. It is perfect for freelancers or consultants who have a more complex income structure.
  

• Expert-Assisted Filing Plan (₹999): If you prefer expert assistance with your tax filing, this plan offers the support of TaxBuddy's tax experts. It’s designed for individuals with basic returns and provides a professional review of your tax filing process.
  

• Expert Business Plan (₹2,499): This plan is best for self-employed individuals with complex tax situations, such as those who have significant business income or other deductions. The expert assistance ensures that all tax benefits and deductions are maximized.

Each plan comes with its own set of benefits, allowing self-employed individuals to choose a package based on their specific needs and complexity of their tax situation. All prices exclude 18% GST.

Choosing Between DIY and Expert-Assisted Plans

When choosing between DIY and Expert-Assisted filing plans, it depends on your comfort level with tax filing and the complexity of your income.

• DIY Filing Plan: Best for self-employed professionals who have simple, straightforward returns and are comfortable handling the filing process themselves.

• Expert-Assisted Filing Plan: Ideal for those who want peace of mind, as a tax expert will guide you through the entire process. It’s also beneficial for individuals with more complex income structures or those unfamiliar with tax filing procedures.

TaxBuddy’s pricing is transparent, and the platform offers excellent customer support to ensure that both DIY and expert-assisted filers get a smooth, stress-free filing experience.

Section 87A vs Standard Deduction: Maximizing Your Tax Benefits

Is Section 87A Available in the New Tax Regime?

Under the new tax regime (Section 115BAC), the Section 87A rebate is available to individuals whose taxable income is below a certain threshold. For FY 2024-25 and FY 2025-26, the rebate amounts and eligibility are as follows:

• FY 2024-25: The rebate is available for individuals with taxable income up to ₹7,00,000, offering a tax reduction of ₹25,000.

• FY 2025-26: The threshold for the Section 87A rebate increases to ₹12,00,000, with a tax rebate of ₹60,000.

This rebate can be claimed directly to reduce your tax liability, making it a valuable tool for reducing your tax burden in the new tax regime.

How Standard Deduction Works in the Old vs New Tax Regimes

The Standard Deduction is an important tax benefit, available to salaried individuals and pensioners, which reduces your taxable income. Below is a comparison of how Standard Deduction works in both tax regimes:

• Old Tax Regime: A ₹50,000 standard deduction is available for all salaried individuals, reducing taxable income directly.

• New Tax Regime: In the new tax regime, the standard deduction is ₹75,000 for FY 2024-25 and FY 2025-26. This deduction can be claimed alongside other deductions available in the new regime.

If you're a self-employed individual opting for the old tax regime, you'll be eligible for both the standard deduction and Section 87A rebate (if your income qualifies).

Taxability of Online Gaming Winnings for Self-Employed Individuals

Understanding the Tax Rate and TDS for Online Gaming Winnings

The tax rate for online gaming winnings is set at a flat 30% under Section 115BBJ. This rate applies to the net winnings, which is the amount withdrawn after accounting for deposits and opening balances. If your net winnings exceed ₹10,000 in a single transaction, TDS (Tax Deducted at Source) will be levied at 30%.

How to Report Gaming Winnings under "Income from Other Sources"

Online gaming winnings should be reported as "Income from Other Sources" in your tax return. These winnings are subject to tax at a flat rate of 30%. If you have had multiple gaming transactions or winnings during the financial year, make sure to report the cumulative amount of net winnings. Additionally, no deductions for expenses can be claimed against these winnings.

Summary & Recommendations for Self-Employed Taxpayers

• Opt for Presumptive Taxation under Section 44ADA if eligible to streamline your filing process and save on compliance costs.

• Leverage TaxBuddy’s affordable DIY or expert-assisted plans based on your income complexity.

• Maximize your Section 87A rebates and standard deductions to reduce your taxable income.

• Report online gaming winnings under "Income from Other Sources" and pay tax at the applicable rates.

Conclusion

Filing taxes as a self-employed individual can be a complex process, but it doesn't have to be overwhelming. Whether you're navigating the intricacies of choosing the right ITR form, leveraging the Presumptive Taxation Scheme, or maximizing your tax benefits with Section 87A and Standard Deduction, understanding your options is key to filing efficiently and affordably.

With the ever-evolving tax laws and the need for accuracy in reporting, many self-employed individuals find the process daunting. That's where TaxBuddy comes in. TaxBuddy provides an easy-to-use platform designed to simplify the tax filing process, making it accessible to everyone, regardless of their tax knowledge. The TaxBuddy mobile app streamlines the entire process, from uploading documents to completing your tax filing, all in one secure, user-friendly platform.

FAQs

1. What is the cheapest way to file taxes for self-employed individuals?

• The cheapest way to file taxes for self-employed individuals is by using online tax filing platforms like TaxBuddy or other government portals that offer free filing options for basic returns. If you have a simple tax return, using these platforms can save you both time and money. However, if your tax situation is complex, seeking professional assistance might be worth the cost for accuracy.
  

2. Can self-employed individuals file taxes on their own?

• Yes, self-employed individuals can file taxes on their own if their income and expenses are straightforward. Using online tax filing platforms or the Income Tax Department's e-filing portal is a cost-effective way to file taxes. However, if you have multiple income streams, deductions, or complicated tax liabilities, it's advisable to consult a professional to ensure accuracy and avoid penalties.
  

3. Do I need an accountant to file my taxes if I’m self-employed?

• It depends on the complexity of your taxes. If your income comes from freelance work or a small business, you might be able to file taxes on your own using tax software. However, if your tax situation includes business expenses, capital gains, or other complexities, hiring an accountant can help ensure compliance and reduce the risk of errors or audits.
  

4. What documents do I need to file taxes as a self-employed individual?

• You will need the following documents:
  

• Income statements (Invoices, payment receipts)

• Bank statements to track business income

• Proof of business expenses (Receipts for office supplies, rent, utilities, etc.)

• Form 16 (if applicable for any TDS deductions)

• GST returns (if applicable)

• Interest income details (for savings accounts, fixed deposits)

• Proof of deductions (Section 80C, 80D investments, etc.)

5. Is there a free option for self-employed individuals to file taxes online?

• Yes, the Income Tax Department’s e-filing portal offers free online filing for self-employed individuals. If your income is below the taxable limit or if you have basic deductions, this can be the cheapest option. However, if you have more complicated tax scenarios, using paid platforms like TaxBuddy might be cost-effective in the long run due to features like automatic error checking.
  

6. How do I deduct business expenses when filing taxes?

• Business expenses that are necessary and ordinary for your trade or profession are deductible. These can include:

• Office supplies (stationery, computers)

• Rent for office space or home office deduction

• Utilities and internet

• Travel expenses for business-related trips

• Software subscriptions (e.g., accounting tools)

• Be sure to keep receipts and maintain records of these expenses to claim them on your tax return.

7. How can I avoid paying too much tax as a self-employed individual?

• To avoid paying excess taxes, you can:
  

• Claim all eligible deductions, such as those under Section 80C (PPF, ELSS), Section 80D (Health Insurance), and 80E (Education Loan).

• Keep accurate records of business expenses to reduce taxable income.

• Contribute to retirement plans like the National Pension Scheme (NPS).

• Use tax software like TaxBuddy to ensure you’re maximizing all available deductions and exemptions.

8. Can I file taxes without a GST registration if I’m self-employed?

• Yes, you can file taxes without GST registration if your turnover is below the GST threshold limit (₹40 lakhs for service providers and ₹20 lakhs for goods). If your turnover exceeds this limit, you are required to register for GST. Even if you're not registered, make sure to report any sales or income accurately.

9. How do I claim tax deductions for my health insurance premiums?

• You can claim deductions under Section 80D for health insurance premiums paid for yourself, your spouse, children, and parents. The maximum deduction allowed is ₹25,000 for individuals below 60 years and ₹50,000 for senior citizens (above 60 years). Keep proof of premium payments, such as receipts, to claim this deduction.

10. Is it better to file taxes quarterly or annually if I’m self-employed?

• It depends on your income level. Quarterly advance tax payments are required if your tax liability is above ₹10,000 in a year. This helps spread your tax payments over the year and avoid penalties for underpayment. If your income is lower, you may file annually, but paying taxes quarterly helps manage cash flow and avoid last-minute tax burdens.

11. What are the penalties for not filing taxes on time?

• Penalties for late filing of taxes include:

• Late filing fee under Section 234F, which could be ₹1,000 to ₹10,000, depending on when you file after the due date.

• Interest on unpaid tax under Section 234A (1% per month).

• Additional penalties if the return is found to be incomplete or inaccurate.

• Suggestion: To avoid these penalties, file early, and pay any advance taxes if required.

12. Can I file taxes for multiple sources of income as a self-employed individual?

• Yes, if you have multiple sources of income (e.g., freelance, consultancy, or business), you can file a single tax return. Ensure you report all sources accurately under different heads of income (e.g., income from business, other sources, etc.). Tax software or a tax consultant can help ensure that all income is reported correctly and deductions are applied to reduce liability.