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Freelancers and Taxes 2

Freelancers and Taxes 

How can expenses common to both personal and professional purposes be claimed?

When expenses are incurred or asset on which is being claimed is used for both professional and personal purposes, only a reasonable amount of the expenses and depreciation is allowed as a deduction, not the full amount.

For example, your mobile phone is used for both business and personal calls, only a reasonable portion of your mobile bill attributable to your freelance work will be allowed to be deducted.

Case Study: Rohit, a freelance photographer, takes premises which is owned by his married sister for carrying out his freelancing work. Rent is an expense which is allowed to be deducted from the freelancing income of Rohit. Since the premises is owned by Rohit’s sister he decides to divert some of his income to his sister by paying her higher than a reasonable market rent.

Will this come under the scanner of the I-T Department when he files his income tax return?

Rohit claimed the rent payment as a business expense and reduced his overall income. His sister, who has no other income, paid only a 10% tax on the rental income. The Assessing Officer may not allow a rent payment which is not in line with fair market value of the premises and where the recipient is a relative.

Freelancers and Taxes 



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