Income Tax Taxation

Do Freelancers Need to Pay Tax in India?

Tax filing for Freelancer

Yes, Freelancer also needs to pay the tax in India. Many people don’t like doing a fixed time job and love the flexibility in their working hours. So, these people are called the Freelancer. Today, in this article we will tell you about the tax liability of the freelancers or Tax filing for Freelancer.

It’s a truth that freelancers are the people who work from the comfort of their bed or couch at home, garden or from cool café. But comfort comes with a cost, whatever the reason is freelancers are also liable to pay the taxes to the government for the income they earn, same as business or salary people as per the income tax act.

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What is freelancing income?

Freelancing income is an income just like other income; you get hired for a specific assignment for the specific term in which you paid for the work done by on the time of completion and submission. The difference I that you are not their company employee or their payroll you are hired out of the work premises.

As per the companies act, you will also not get any perks and benefits of the company.  You are not obliged to punch at the exact time- in fact, you can finish the work at from any corner of your choice. According to the Income tax act[1], any income that is earned by displaying your intellectual or manual skills is income from a profession.  This income will be taxed as “Profits and Gains from Business or Profession.

The gross income will be aggregate of all receipts you get in the course of carrying out the profession. Your bank account statement is a document on which you depend solely on the information because all the professional income flows through your personal banking channel.

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Freelancer Tax Deduction

Freelancers while doing the job incurred expenses from their income can deduct an expense.  This could be anything from office furniture to cab fare to visit the clients.  The expenses incurred must be directly related to the job you are doing to get the deductions.

There are two kinds of freelancer’s tax deduction –

  • Expenses claimed as a deduction from freelancing income –

  1. The expenses are solely for the purpose of freelancing work
  2. Spent fully and exclusively for the purpose of the work
  3. Incurred during the tax year
  4. It should not be related to the capital expenditure or a personal expenditure of the freelancer
  5. Not prohibited by law or offense
  • Expenses claimed as a deduction against the income

  1. If you take property on rent while carrying on work then the paid rent will be deducted as a deduction.
  2. Any repairs to the rented property then the repair cost will be deducted as a deduction.
  3. Purchase a capital asset for your work then you can depreciate expense as depreciation and treat that as a deduction.
  4. Expenses that are carried out as work such as purchasing a printer, office supplies, your monthly telephone bill, internet bills or conveyance expenses.
  5. If you pay any expenses that are carried to meet the clients within or outside of India is allowed as deduction.
  6. Any expenses that are carried out to meet the clients or take your clients out for dinner or some other outing and money has been solely depending upon the intention of getting new business or retaining existing business
  7. Paid local taxes and insurance for own business property
  8. Domain registration, apps purchased to test the product are also allowed as expense.
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Tax filing for Freelancer

You can use the deduction under section 80C of the Income-tax act, to save the tax. It offers tax relief on certain expenses and also encourages taxpayers to save for the future.

Net taxable income= Gross Taxable Income- Deduction

When you earn from your intellectual or manual skill, your income is calculated as qualified as profit & gain of business and profession. From a tax point of view, you have to treat yourself as a business person. Like- you have the clients like the way a business or customer has and you have to pay taxes on the income earned from different clients.

TDS for Freelancer

Every professional service that is served by you is subject to 10% tax deducted from the source. Freelancers are also eligible to claim the TDS refund as well, just like any other individual or your salaried friend does.

ITR for freelancers

Freelancers or Consultants are required to fill out and submit the ITR-4 and section 194J under the Income Tax Act.  The act mandates the TDS deduction from the payment made for professional services.  However, the professionals can opt for presumptive taxation and declare 50% of their gross receipts as their income by Filing the ITR-4.

Salaried Individuals feel very easy when it comes to filing the income tax return as compared to freelancers.  With salary individuals, they are alerted or advised by the company HR to tax file or save tax.

But, for freelancers and consultants, it is a tough call as filing the taxes can be a more complicated process.  The freelancers are not bound with one client they have a number of clients so it is difficult for the freelancer to do such tax filing.

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Freelancer from a tax purview

When you can earn from a manual skill or intellectual, your income is qualified as Profits& gain of Business & Profession. From a tax point of view, you have a profession or business person you are also like a freelancer.

Like a professional or business, the freelancers do have clients the way business has a customer and you have to pay taxes on the income earned from different clients.

Applicability of GST to freelancers

Earlier, VAT and Service Tax are the taxes that are applied to freelancers. But, now the tax has been replaced by GST.  GST means the tax applied to the goods or services rendered by you. So, the freelancing also comes under the purview of service. So, 18% of GST applies to most services.

Things to remember under GST for Freelancers

  • If the total income from freelancing work exceeds Rs 20 lakhs, then GST will be applied as on the other GST taxpayer.
  • You should be eligible for composition scheme, in case you sell goods
  • In the case of services, the composition scheme does not apply. However, you can provide interstate supply up to the limit of Rs 20 lakh without registering under GST.
  • Your invoice must be from the GST complaint.

So, a freelancer is also liable to pay taxes in India.

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