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I am a freelancer based in India with clients in Canada, US and India.

Until now I used my personal savings account (Union Bank of India) to get paid. It has been only a few months since and now I have managed to cross Rs. 1 lakh in savings.

I keep an account of every transaction I have made and ever since I quit my job I feel the need to separate my freelance accounts from my personal accounts. I receive money via paypal and sometimes have to pay others for work done on a particular project.

  1. Should I start another savings account or a current account?
  2. What criteria should I keep in mind while choosing a bank? (I thought of SBI since it has a lot of branches and ATMs)
  3. What do I keep in mind while paying myself?
  4. Tips on managing money in the business account.
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I feel the need to separate my freelance accounts from my personal accounts.

Yes, you should.

Should I start another savings account or a current account?

Do you need the money for daily spending? Do you need to re-invest in your business? Use a current account.

If you don't need the money for business expenses, put it away in your savings account or even consider term deposits.

Don't rule out a hybrid approach either (some in savings account, some in current account).

What criteria should I keep in mind while choosing a bank? (I thought of SBI since it has a lot of branches and ATMs).

If you are involved in online banking and that is sufficient for most of your needs, bank and ATM locations shouldn't matter all that much.

If you are saving a good chunk of money, you want to at least have that keep up with inflation. Research bank term deposit interest rates. The tend to be higher than just having your money sit in a savings account.

Again, it depends on how and when you expect to need the money.

What do I keep in mind while paying myself?

Paying yourself could have tax implications. This depends on how are set up to freelance. Are you a business entity or are you an individual?

You should look in to the following in India:

  • Personal income tax rates
  • Corporate taxation rates
  • Tax credits for small business

The other thing to consider is rewarding yourself for the good work done. Pay yourself a reasonable amount. If you decide to expand and hire people going forward, you will have a better sense of business expenses involved when paying salaries.

Tips on managing money in the business account.

This is a very generic question. I can only provide a generic response. Know how much you are earning and how much your are putting back in to the business. Be reasonable in how much you pay yourself and do the proper research and paperwork from a taxation point of view.

  • Thank you so much for replying. What expenses come under daily spending (I am a front-end web developer)? I like the idea of term deposits and have heard about a hybrid plan in SBI. Going to find out about that now. Online banking is sufficient for most of my needs and I can use the ATM card of my personal account for on-the-go access. Makes sense. Currently I am set-up as an Individual but I have heard I can save taxes using a corporation set-up. Is it true? How do I go about doing this? – thedigitalmonk Jun 5 '14 at 9:18
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    Daily business expenses involve promoting your business (not always free), taking a client out to lunch, buying equipment/software. And yes, you might be able to save taxes if you set up as a corporation through small business tax credits. Look in to it. – karancan Jun 5 '14 at 13:01

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