In this article, we have discussed about tax on freelancers income in India . India is the second-largest freelancing Market. freelancing has taken off quite a bit in the past few years now. It has become a sustenance for the people. freelancers are the self-made folks who work at the comfort places for different sectors. they are from different fields like social, marketing, corporate so on. but now when freelancing has come a long way there, it has its own tax rules. Because freelancers are the entrepreneurs who work for themselves and earn money, so they must pay taxes like others under Income Tax Act.
Income, expenses, and Accounting of freelancers in India: -
Income: –More than half of the freelancers and bloggers who works online earn income through:-
- sales and advertising from several ways.
- By providing services according to their client’s needs like web designing, content writing, blogging, vlogging, and other services.
- They can associate with companies and provide their work according to their skills.
- Freelancers spend their money according to their task needs.
- They must show their expenses based on the fiscal year.
- No personal expenditure or any capital involves in the expenses
- Expenses should be legal and according to the rules of the Income Tax Act
Accounting:- There are two bases of accounting for freelancers and the first one is accrual basis accounting and another one is cash basis accounting And the Chosen One will continue for years and the technique cannot replace.
Cash basis accounting method: – cash basis method recognizes revenue and expenses at the time case is recorded or paid out.
Accrual basis accounting: – Accrual basis accounting means revenue and expenses are recognized and recorded when they occurred.
That’s how income, expenses, and Accounting must be done.
TOTAL TAXABLE INCOME
Freelancing is a kind of business so freelancers must pay tax may reduce their taxable income by taking advantage of US 80G in Income Tax Act. They also can return or deduct taxable income.
Net taxable income = Gross taxable income – deduction
ITR filing :-
When it comes to tax on freelancers’ income in india, they are required to file ITR, they can file ITR 3 or ITR 4. ITR 3 applies to income from business or profession. freelancers can opt for a presumptions tax schemes US 44ADA
ITR declaration encloses with terms shown below: –
- Sales and sources of sales.
- Depreciation on
- Spending on sales
- Amount of tax along with advance tax
- Deduction of amount spend on
Important points to be remembered – deductions: –
There are some deductions shown below which do not include in taxable income, rent of the property includes in this and includes repairs of property objects such as laptop, printer, computer, other equipment’s needed of work
TDS deduction on Freelancers in India
TDS stands for tax deduction at source, mostly clients deduct TDS from the pay of the freelancers.
# Here is some information about TDS deduction in India: –
- Expenses of freelancing during traveling will be deducted
- Bills and office charges
- Cost of depreciation
- Expenses in clients meeting and Hospitality will be deducted
The amount is 10% under IP section 194, but in covid in between May to March it has been 7.5%
- Freelancers can claim TDS at the time of ITR filing
- Freelancers can check their TDS in traces form under section 26 AS.
GST And GST Return
In the place of the VAT and service tax, GST stands for goods and services tax if the income of freelancers is more than 20 lakhs per annum, they must register for GST number and in northeast States limits is 10 lakh p.a. Freelancing also falls under the services so 18% GST applies on it. Freelancers can file a return of GST if the paid amount is more than liable for the financial year. They must file 25 GST return in a year. As per section 80 of the Income, Tax Act freelancers can save up to 1,50,000 by investing in the national saving certificate, provident funds, ULIPs, and life insurance.
Frequently Asked Questions
As per the income tax laws, freelancers too are liable to pay taxes for the income they earn just like salaried or business taxpayers.
– It is widely known that freelancers must obtain GST registration and pay 18 per cent Goods and Services Tax for any income earned from these services. This is implemented to those who earn an income that exceeds the threshold of INR 20 Lakhs.
As per the income tax laws, freelancers too are liable to pay taxes for the income they earn just like other salaried or business taxpayers.