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A Detailed Guide for Freelancers on the applicability of Various Taxes

Narendra Kumar

| Updated: Dec 19, 2018 | Category: Income Tax, Taxation

Freelancer Income

A freelancer or freelance worker is a term that is commonly used for a person who is self-employed and is not necessarily engaged with or committed to a particular employer for the long-term. In this article, you will learn more about income tax applicability on freelancers.

What is Freelancing?

A freelancer is a person who is self-employed and generally works on a project basis or assignment basis for clients. As such, there is no requirement of special education or qualification for doing freelancing. Freelancers are available in almost all kind of fields such as accounting, photography, web programming, office administrator, personal assistant, designing, architect, finance, data searching, BPO, KPO etc. With the growing reach of the internet, online or web freelancing becomes a good avenue for part-time or even full-time earnings.

How does Freelancer Earn?

Freelancers generally earn by rendering the services to their clients.

What kind of taxes is Incurred on Freelancer Income in India?

There are 3 types of taxes on freelancer Income in India which are:

  1. Income Tax
  2. Service Tax
  3. Goods and Service Tax (GST)

Income Tax on Freelancer Income in India

Income tax basically imposed on the income which is earned by the freelancers. It doesn’t matter that its earn within in India or outside India, so you have to always show your income to the government of India by the way of Income Tax Filings in India.

Freelancer Income tax Filings or any other simple sole Proprietorship firm’s income tax filings are the same. In both cases, you have to file the taxes mandatory if your earning is more than 2.5 lakh in a year.

Read our article:Do Freelancers Need to Pay Tax in India?

How to Calculate Income Tax on Freelancer Income in India?

  • Income Calculation

Freelancer Income is the sum of all the receipts from carrying your professional or freelancer work for your clients or advertisements income as a blogger. You can use your bank statements or payment gateways or PayPal or any other payment medium which you would use to getting payments from clients or ad networks for the add receipts income.

  • Expense Calculation

There is a lot of Expense which is incurred by the freelancer on their work. As a result of which they are allowed to claim all the necessary expenses as a deduction from their income earned. Following are a major deduction from your income –

  1. Rent, Repairs, Depreciation on Fixed Assets like Laptop, office expenses, traveling for business, etc.
  2. Domain Registration Expenses, Hosting Expenses, Server Expenses, Paying to other freelancers or Salary to Employees, SEO or Digital Marketing Expenses or any other expenses which incurred for the purpose of earning the revenue.

Apart from the Expenses, you claim the deduction also. Here is some useful deduction for the freelancers

Example – Mr. Rajiv, a freelancer has the following taxable income

Total Revenue/Total Turnover = Rs. 13,00,000

Less: Total expenses incurred for earning revenue from freelancing =Rs. 2,00,000

Less: Total amount of Depreciation on all assets = Rs. 1,50,000

Gross Total Income = Rs. 9,50,000

Less: Deductions allowed for the specified investments = Rs. 1,00,000

Total Taxable Income = Rs. 8,50,000

 How to File Income Tax for your Freelancer Income in India?

  1. Simply signup on the Official Income Tax Website[1]
  2. Create your new account with your Pan Card Number and other credential details.
  3. Go to “E File” Tab on the website of Income Tax.
  4. Then you need to select the option of “Prepare and Submit Online ITR”
  5. Choose the appropriate ITR Forms. Mostly ITR-4S and ITR 1 are available on the utility. As a person who is filing the return as a Freelancer, you have to always file the details in ITR-4 which is used by the business. You can use ITR4S also but in that, you have to show 8% of the turnover as gross income.
  6. Download the Java Utility & File the Taxes.

Alternative Option- You can use Enterslice for filing your Income tax returns

Service Tax on Freelancer Income in India

  1. Service Tax is applicable on the freelancer when their turnover or total services billing is more than 9 lakh in a year within India
  2. If you are providing your services outside India then it is called Export of the Services. Export of the Services is free or exempt in India from the implication of Service Tax. So if your billing is more than 9 lakh in a year then you have to apply for the service tax registration in India & have to pay the amount of service tax when your turnover crosses 10 lakh in a year after the registration.

GST on Freelancer Income in India

  1. When you are providing your services to foreign clients only

You are not mandatorily required to register yourself under GST as the export of services is free under GST irrespective of the amount of turnover. You can register voluntarily under GST for claiming back GST paid on input services used for purpose of freelancing.

Note: In case if your turnover is more than Rs 20 Lakh and you have rendered service to an Indian based client (even if the contract amount is Rs 1) then you are required to get register in GST and require charging GST as per the applicable rate.

  1. When you are providing services to Indian clients only within your state

You are mandatorily required to get registered under GST only if your turnover exceeds Rs 20 Lakh. For more information, contact Enterslice which has a team of professionals to guide you on this.

  1. When you are providing services to Indian clients but outside your state:

You are mandatorily required to get register in GST as you are providing interstate services irrespective of the turnover.

Conclusion

According to the Income Tax law of India, any income earned in the form of freelance assignments is liable for the tax.

Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

Business Plan Consultant


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