Salaried individuals and self-employed individuals are two different types of taxpayers, and they have different ways of paying taxes. Let's compare and contrast how taxes are treated for these two groups:
Salaried individuals | Self-employed individuals | |
| Income Reporting | Salaried individuals work for a company. They receive a fixed salary from their employer, and their taxes are deducted from their salary. The employer provides them with a salary slip that shows their income, taxes deducted, and other details. | Self-employed individuals work for themselves. They earn money from their own businesses or freelance work. They are responsible for keeping track of their income and reporting it to the tax authorities. |
| Tax Payments | Taxes for salaried individuals are deducted at the source, which means the employer deducts the taxes from their salary and pays it directly to the government on their behalf. Salaried individuals receive Form 16, which summarizes their income and taxes paid during the year. | Self-employed individuals need to calculate and pay their taxes themselves. They must estimate their income, calculate the taxes owed, and pay them directly to the government. |
| Deductions and Expenses | Salaried individuals may be eligible for certain deductions or exemptions, such as house rent allowance, standard deduction, and deductions for investments like provident fund or insurance premiums. These deductions help reduce the taxable income and, in turn, the taxes owed. | Self-employed individuals can also claim deductions, but they have more options available to them. They can deduct expenses related to their business, such as rent for a workspace, equipment costs, utility bills, and professional fees. |
| Documentation and Record-keeping | Salaried individuals usually have a salary slip and Form 16 provided by their employer. They need to keep these documents safe as they may be required while filing their tax returns. | Self-employed individuals need to maintain proper records of their income and expenses. This includes keeping receipts, invoices, and other supporting documents for their business transactions. These records are important for calculating accurate tax liability. |
