There has always been an argument between salaried employee and an entrepreneur/ freelancer relating to tax planning and salaried employee are always complaining that why do they have to pay higher tax as compared to an entrepreneur when they both are earning same income.
Also, there are many common expenses for an entrepreneur which he incurs for his personal as well as business needs and he can claim it as business expense many a times with some restriction. However, same cannot be done by salaried employee.
Further, a businessman/ professional has many ways in which they can plan their taxes. However there is no such benefit available to an employee as there are some pre-defined deductions available to the salaried employee which he can claim.
Salaried employee’s are facing much more problem now when they have been asked to “work from home” after the pandemic especially people who were working for a foreign company and are stuck in India due to pandemic.
Due to work from home their household expenses have increased the home is now their office but they can still not claim any expenses against their salary income.
Many companies, especially in the field of service are also offering it’s employee to work from home permanently and also providing an option to work as an independent professional with the company rather than an employee.
This decision will help many employees as well as companies to plan their business and taxes.
Let’s have a look at various benefits which an employee can have while working as a freelancer with it’s company rather than an employee along with various taxability related things which needs to be kept in mind.
Although they won’t be full time employee of the company but they will still have a contract with the company to work as a professional and hence although there will be some reduction of job security but it will not be completely gone.
Next, many employees were paying rent for having a working space outside their home for meeting in a co-working space which they could not claim as expense against their salary income, but now with working as an independent freelancer/ professional they can claim such expenses against their income/ receipts.
Also, now they can easily take work for other people and increase their revenue unless there is any clause in the contract. Although earlier also people would be doing freelancing work with job but now they can easily plan the same and work.
Since, the individual professionals would be working as freelancer/ businessman they can claim any business related expense which can internet expense, expense for any software, office rent expense etc. Also now they can use benefit of presumptive taxation scheme.
Hence, the person can take benefit presumptive taxation scheme under section 44ADA if he is a professional engaged in profession as defined under section 44AA i.e. legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board and show a percentage of his receipts as income without having to maintain books of accounts if the total receipts is upto Rs. 50 lakh.
If their work does not lie in the above mentioned professions they can still take benefit of presumptive taxation scheme under section 44AD of the Income tax act by showing disclosing a percentage of their total receipt as profit and not maintaining books of accounts. Here the threshold of receipts is Rs. 2 crore.
Thus, all the above measure would help to plan the tax of a person who was paying much higher tax till now and not getting any deduction from his salary income.
Along with the benefits mentioned above there are some short comings of this which are as under:
The person working as a freelancer/ professional will not get the security or benefit of PF fund, if any which he would be getting earlier when he was an employee.
Generally loans and credit cards are easily available to salaried employee as compared to a business man or independent professional.
After a certain threshold the person needs to maintain the books of accounts and all other details.
GST registration needs to be taken if the person exceeds threshold of Rs. 20 lakh irrespective of the service recipient being in India or outside India. You can read more about GST on freelancer at: https://www.taxontips.com/gst-registration-for-freelancers-in-india/
Although there will be a contract with the previous employee for continuous freelancing work but there are chances that the income or pay might reduce and it would be easy for them to lay off you as compared to you being an employee.
Thus, a person working as a freelancer one need to always have options and increase their clients because once there is a gap in the resume for job experience it becomes difficult to get another job.
Company also is benefited if work as a professional and not as an employee as their compliance with labour laws reduces and they don’t have to invest in statutory funds etc.
We hope that this article would have helped you to decide as to whether you should take up work as a freelancer or still work as an employee.
Thus, above are the various benefits of working as a freelancer with a company rather than an employee. However do remember that while working as freelancer you need to take care of your taxes on your own be it GST registration, tax filing, advance tax payment and for that you would need help of a professional and with us you can book an online phone consultation with a tax expert. The details are as under:
You can book online phone consultation/ assistance with expert as mentioned below:
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