The gig economy is here in India. With many millennials tending to switch jobs quickly and past the typical nine-to five 'job' shifts, both individuals and corporates are moving to the gig economy.
There is consensus that gigs are as relevant as any other type of employment. Indian freelancers hold 24% share of the global online gig economy, as per a report, titled,"Future Of Jobs In India: A 2022 Perspective", published by EY in collaboration with Nasscom and Ficci.
With the prevalence of short-term contracts or freelance work as opposed to permanent jobs, the gig economy is a result of market demands. But doing gigs comes with its own share of issues when it comes to managing money. Irregular and lumpy nature of income and lack of clarity of future prospects haunt those doing gigs for a living, in a world where our costs are monthly in nature. DNA Money spoke to experts to help you create a blueprint for financial well-being for these 'gigsters'.
It is the rising cost of employment and workspace that is encouraging small and medium-sized firms to replace full-time employees with contract-based or freelancers. Abhishek Agarwal, senior vice president (global delivery), The Judge Group says that on the other hand, for working professionals, gig economy offers opportunities to take many jobs at a time and maximise the economy.
"Also, as the nuclear family culture is growing rapidly in metros and Tier-1 cities, it is difficult for young couples to take care of their children on permanent job positions. Gig economy allows them to maintain the work-life-family balance without compromising financial security," he remarked.
For IT professionals, engineering consultants, chartered accountants, digital marketing professionals, teachers, designers, writers, and other creative people, gig economy is emerging as the most suitable employment option where they usually serve businesses on a project basis. But it is not a good option for people in manufacturing, operations, quality control, business development, finance, HR, etc, says Agarwal.
For those doing gigs to survive in this world, making a financial plan is extremely important. The first step is to make a budget. To do this, start by tracking all your expenses, as accurately as you can, for three months. "This includes all your overheads—travel, internet, equipment. The next step is to know your average monthly income. As a freelancer, you may not get monthly paychecks. Your payments may be cleared at the end of a project or against specific deliverables. So, you need to have a clear idea about where the income comes from, the temporary one-time assignments and long-term ones. This will help you plan a more realistic budget," advises Adhil Shetty, CEO, BankBazaar.com.
While irregular income can make budgeting and regular saving complicated, you can start small and have multiple regular small savings plan like Systematic Investment Plans (SIPs), based on your average monthly earnings. It doesn't matter if you start with as little as Rs 500. The point is to be regular.
"Also allocate money for different saving goals. For example, in addition to all your normal day-to-day expenses, allocate a fixed amount for longer-term savings, and another fixed amount for short-term savings that can also contribute to unexpected small costs. You should also plan for one-time investments like balanced mutual fund when you get some big payments," says Shetty.
Gig workers require loans and insurance too. But getting them may not be that easy as compared to salaried individuals. Rachit Chawla, CEO, Finway says that for taking home or personal loan, banks require at least six to 12 months of income history for the full-time employed worker, as well as the gig-economy worker. "Unlike full-time workers, gig employees find it a challenge to prove the stability of their income as they often work on short-term contracts, on a part-time basis. They must explain the reason behind working less than full-time and give the proof of income, tax returns, financial statements up to 12 months and debt and expense records along with the proof of assets."
It is advised to clear the debt record, if any, before applying for the loan to avoid being questioned why the loan is not repaid during the specified time. Self-employed persons may also be asked to produce latest Income Tax Return(ITR) along with the computation of income, balance sheet (B/S) and Profit & Loss (P&L) for the last two years certified by a Chartered Accountant.
"There is also a growing demand for insurance products with the rise of gig workers where these can be activated only for a certain period of time when the worker is working. In such a way, the pricing of the insurance can practically be calculated on the basis of working hours. As for now, they should go for a self-employed and short-term insurance policy which provides limited coverage saving them money," says Chawla.
Normal insurance products where premiums are paid semi-annually or annually may not always be a right fit for gig economy workers. Single premium policies and products are best-suited. However, having term insurance and health insurance covers is a must. Those doing gigs for a living need to save up money and pay term and healthy policies once a year.
Amar Pandit, CFA, founder of HappynessFactory.in agrees that the gig model definitely provides flexibility and opportunity to structure your taxes from an income perspective.
"Tax benefits are the same as that of a consultant (primarily the ability to reduce your direct expenses from your income thereby reducing taxable income). However, the key decision point here should never be tax structuring, but the opportunity to do things that you wish to do. Having said that, while you can reduce your taxes by claiming relevant business expenses, your compliance (GST Registration, filing returns, and other elements such as TDS, etc) will also go up significantly. This is also a function of the quantum of your income whether it is above Rs 10 lakh or so," says Pandit. Though there are certain tax benefits, these can be easily negated by the administrative and compliance burden.
Thus, it is important that there is a significant tax benefit, if all you are looking at is saving tax. The goal of tax planning should never be to just save tax, but to maximise post-tax income.
A freelancer does have several tax benefits. For instance, all expenses related to your freelance work that you bear in the financial year can be claimed as deductions. These include electricity bills, phone bills and any travel expenses incurred for your work.
"Moreover, you can claim depreciation against assets like mobiles, cameras, computers, laptops, instruments, or other equipment to furnish your day-to-day work provided you have the receipts for their purchase," says Shetty.