Readers' Corner: Taxation

Kuldip Kumar, partner and leader personal tax, PwC India, answers your questions

I work as a graphics designer for a few US-based companies. The payment is not regular. How do I pay tax on my income? Also, how do I know if the payment is being done after deducting taxes in the US? If it is, do I still have to pay tax in India?

You have provided limited details in your query. One would need to know where the services are rendered, that is, in India or the US, and also analyse the Indo-US treaty to determine the taxability of your income. Under the Income Tax Act, 1961, it is the payer of income who is required to deduct and deposit taxes at the time of payment of income to the payee. If the income earned by you is taxable in India, technically the overseas entity may have withholding obligations. However, if the said income is taxable in the US, the same would be subject to US tax and withholding in accordance with the US tax rules for which you will need to consult a US tax expert. Whether US taxes have been withheld or not, you should be able to determine this by reconciling the payment with the written agreement you may have with your overseas clients. In case any taxes have been deducted or paid in the US and your income is doubly taxed in India, you will be able to avail the credit of US taxes paid against your Indian tax liability in accordance with the treaty. Further, where taxes are payable in India and the liability exceeds Rs10,000, you will need to pay taxes in advance in the prescribed four instalments. If you have not paid taxes in advance, you will be subject to penal interest and will have to pay the taxes before filing the income tax return. 

I work as a freelancer. What are the tax exemptions I can claim as part of my work?

For a freelancer, expenses incurred to earn income can be claimed as deduction in accordance with the provisions of the Income Tax Act, 1961. For example, if you have a car, computer, etc. and use it for business purposes, you may claim the depreciation and other running and maintenance expenses. No expenses can be claimed which pertain to personal use. Once you have computed your income from your business or profession, you can claim all other deductions that are available to an individual, such as deduction under Section 80C for various investments such as premium paid for life insurance, contribution to PPF, tuition fees of children, principal repayment of housing loan, etc. under the overall limit of Rs1,50,000. Contribution to NPS under Section 80CCD is also available. 

Even other deductions such as for housing loan interest, medical insurance for self and family under Section 80D, or deduction for payment of rent for accommodation up to Rs5,000 per month under Section 80GG too can be availed. You do need to pay attention to some other aspects such as the requirement of maintenance of books of accounts and/or their audit, tax withholding on certain payments, etc. if required under the tax laws. These requirements depend on the nature of business or profession and also the monetary threshold of turnover or profit. There are also options of offering income on presumptive basis in certain cases. In that case maintenance of specified books of accounts is not needed.   

I paid the premium for my parents' health insurance, but the insurance document does not have my name on it. How can I claim tax deduction on it? I have the bank statement to show that the payment has gone from my account through NEFT because I purchased it online.

Under Section 80D of the Income Tax Act, 1961, deduction for payment of medical insurance premium on behalf of parents can be claimed by an individual. If the policy is for your parents only, then your name will not appear in the policy document, but you are eligible to claim the deduction. Insurance companies do issue a receipt against payment of premium. If your employer or tax authorities want to verify the claim for deduction, you may submit the copy of the bank statement and also proof of your relationship to clarify any question.

The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in