It may sound surprising, but self-employed people outnumber salaried individuals in the country. In 2013, over half of the 473 million workers in the country were self-employed. A large number of self-employed people has made India the country with one of the largest gig economies in the world. However, self-employment is a broad term and encompasses a wide variety of workers ranging from casual labours to freelance writers and graphic designer. There is a significant difference in the functioning and payment schedules of self-employed and salaried individuals. Most self-employed workers have irregular payment schedules and need tax saving investment options in sync with their payment timetable.
While opting for an investment, a self-employed individual should not just look at the initial tax saving but also seek tax-free returns. There are three phases to an investment - investment phase, accumulation phase and withdrawal phase. Many instruments help in tax saving in the investment and the accumulation phase but are taxed in the withdrawal phase. Self-employed people should invest in a mix of instruments with different tax saving capabilities. Here are a few tax-saving tips for self-employed people.
Bank fixed deposits: Bank fixed deposits are not fully tax-free but are a good short-term investment option. One has to remain invested in a bank fixed deposit for a certain number of years. Investment in five-year bank fixed deposits qualify for tax deduction under Section 80C of the Income Tax Act, 1961. Fixed deposits are also suitable for self-employed people as they require a lump-sum payment. The returns of fixed deposits vary but hover around 7-8%. Fixed deposits help in tax saving in the investment phase but the interest earned is taxable, which may diminish the returns in the long run.
Self-employed individuals can use a mix of tax-free investment options for tax savings along with optimizing returns. Fixed deposits and ELSS can be used for short-term goals, while NPS and ULIP can be used to fulfil long-term goals such as retirement planning and child's education. The Invest 4G unit-linked insurance plan from Canara HSBC Oriental Bank of Commerce can be an ideal choice for self - employed people. Wealth boosters and loyalty additions boost Invest 4G plan's returns, while a host of portfolio management strategies helps you manage risks efficiently