On the last day of your salaried job, your employer deducts TDS from your salary for the last time. From Day 1 of self-employment, you become your own tax department — responsible for calculating, depositing, and filing everything yourself. Most first-time entrepreneurs discover this in March, when the advance tax deadline hits and they have no idea how much they owe.
This guide walks you through every tax change that happens when you make the transition, in the order you'll encounter them.
The Biggest Shock: Advance Tax
When salaried, your employer deducted TDS every month. As self-employed, nobody deducts anything — you must calculate your estimated annual tax and pay it in 4 instalments:
| Instalment | Due Date | Cumulative % of Annual Tax | Penalty for Missing |
|---|---|---|---|
| 1st | June 15 | 15% | 1%/month under Section 234C |
| 2nd | September 15 | 45% | 1%/month on shortfall |
| 3rd | December 15 | 75% | 1%/month on shortfall |
| 4th | March 15 | 100% | 234B interest if <90% paid by Mar 31 |
If you leave your job mid-year (say August), you've already paid advance tax via TDS from your salary for April–August. For September–March, you must now pay advance tax yourself on your self-employment income. Many first-timers forget this and get a nasty surprise at ITR filing time with interest penalties piled on.
Presumptive Taxation: The Simplest Option for New Businesses
Two sections of the Income Tax Act allow you to pay tax on a presumed income percentage of your gross receipts — no books, no audit required:
| Section | Who It Applies To | Turnover Limit | Presumed Income | Effective Rate (30% slab) |
|---|---|---|---|---|
| 44AD | Any business (not professionals) | Up to ₹2 crore | 8% of turnover (6% digital) | ~2.4% of revenue |
| 44ADA | Specified professionals: doctors, CAs, lawyers, architects, engineers, consultants | Up to ₹75 lakh | 50% of gross receipts | ~15% of revenue |
Presumptive taxation is best when your actual expenses are lower than the presumed deduction — i.e., if your real profit margin is higher than 50% (44ADA) or 8% (44AD). If your actual expenses are higher, opt-out and maintain books to deduct real expenses. A CA can model both scenarios in 30 minutes.
Business Expenses You Can Now Deduct
One advantage of self-employment: genuine business expenses reduce your taxable profit. These are not available to salaried individuals (except the flat ₹50,000 standard deduction):
- Office rent: Full rent if you have a separate office, or up to 30% of home rent if working from home (needs documentation)
- Internet and phone: The business-use proportion of your bills
- Equipment and software: Computers, cameras, subscriptions (Zoom, Adobe, Microsoft) — depreciated or expensed depending on amount
- Professional services: CA fees, legal fees, consultant payments
- Travel for business: Domestic flights, hotels, local conveyance for client meetings
- Marketing and advertising: Website costs, digital ads, printing
- Professional memberships: ICAI, Medical Council, Bar Council membership fees
- Salaries paid to staff: Fully deductible if PF/ESI compliance is maintained
Personal expenses mixed with business are the #1 audit risk. You cannot deduct: personal groceries or dining (only genuine client entertainment), personal travel, personal phone or internet in full if it's a personal plan, rent for your personal home (only the business-use proportion). Maintain separate business bank account and credit card — this makes the distinction clean.
GST Registration: When and Why
GST registration is mandatory if your annual turnover exceeds:
- ₹20 lakh — for service providers
- ₹40 lakh — for goods traders (₹20L in special category states)
You can voluntarily register below these thresholds — beneficial if your clients are GST-registered businesses, as they can claim input tax credit on your invoices. Relevant rules:
- File GSTR-1 (outward supplies) by the 11th of each month
- File GSTR-3B (summary return) by the 20th of each month
- Annual return GSTR-9 by December 31
- GST rate for most professional services: 18%
Your 80C and 80D Deductions Survive
A common myth: "I lose tax deductions when I go self-employed." False — under the old tax regime, all deductions remain available:
- 80C (₹1.5L limit): PPF, ELSS, LIC, EPF voluntary contributions, home loan principal, NSC, Sukanya Samriddhi
- 80D: Health insurance premiums — ₹25,000 self+family, ₹50,000 if parents are senior citizens
- 80CCD(1B): NPS additional contribution — ₹50,000 over and above 80C limit
- 80CCD(1) for self-employed: NPS contribution up to 20% of gross income (not 10% like salaried)
- 24(b): Home loan interest — ₹2L cap for self-occupied property
Get Your Tax Structure Right From Day One
The choices you make in your first year of self-employment — presumptive vs. regular taxation, old vs. new regime, GST registration timing — compound over years. Ankit Choradia (CFP® & SEBI RIA) helps entrepreneurs build tax-efficient business structures from the start.
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