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Tax on Freelancer's Income in India

Tax on Freelance income in India

Tax on Freelance income in India

With more and more growth of internet in India, the number of freelancers,bloggers or independent professionals is on a steep rise. People prefer to work for themselves on their own terms than an employer and are capable of earning far more than what they would in their day to day job.While the freelancing industry gives us really great earning opportunities, taxation is always a sore issue. While the government budget has clear guidelines for conventional salary earners and businessmen for taxation, where do the freelancers go?

Within Indian Law any individual running a business where he/she is the sole owner is termed as a Sole Proprietor, the same applies with a Freelancer. A person earning on his own is considered a Sole Proprietor and needs to file income tax returns & Service tax returns (only if the specified limit is crossed in a particular year). In this article we’ll be discuss only Income tax issues & in next article we’ll try to explain service tax on Freelancing.

If you have any other income source (maybe your full time job) you need to include that as well while filing your income tax return. Income Tax is not payable on the total Revenue earned but is payable on the total Income earned. Total Revenue is the Gross Amount received and Total Income is the amount earned after  Payment of Expenses & Depreciation incurred for the purpose of earning the Revenue.

Following are the expenses allowed to be deducted while computing Income Tax

Any amount which has been paid for the purpose of earning revenue is allowed to be deducted as an expense. A few examples of the expenses allowed are as follows:-

  • Payment to Freelance Consultants
  • Rent Expense
  • Electricity Expense/ Telephone Expense/ Internet Expense/ Water Expense
  • Petrol/ Diesel Expenses
  • Domain Hosting Expense, Domain Purchase Expense, Blog Designing Expense etc
  • Any other expense incurred for the purpose of earning Revenue

It may be noted that only those expenses incurred for the purpose of earning Revenue are allowed to be deducted as an expense.

 

Salient Points to consider:

  1. If you earn above Rs 2.5 Lakh for FY 2014-15, it is  mandatory for you to  file return of income  u/s 139 of the Income tax Act.
  2. It is also mandatory for you to get your accounts audited if gross earning as professional is more than 25 lakhs in a year.
  3. If you are carrying on business of exporting services, you need to get accounts audited u/s 44AB if turnover is more than 10 million in a year.
  4. You need to pay tax in advance if the total tax payable during the year is more than Rs. 10,000.
  5. If your accounts are supposed to be audited , in that case you are also liable for deducting tax at source depending on the nature of payments.

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Income Tax Returns (ITR) form simplified for AY 2015-16

Filing of Income Tax Return

At the end of the year, every taxpayer is required to file a statement of his taxes. This statement of taxes is called the Income Tax Return (ITR) and this Statement should indicate:-

  1. Revenues earned and the sources from where they are earned
  2. Expenditures incurred
  3. Depreciation claimed on assets
  4. Investments made which have been claimed as a Deduction
  5. Total Taxes paid incl. the Advance Tax paid or the TDS deducted (if any)

FAQ’S

Q. Am I considered a Freelancer / Consultant / Professional?
When you earn ‘Income’ from self employment, from any profession or work, which requires you to use a skill, which may be intellectual or manual skill, such income will be taxable under the head ‘ Profits & Gains of Business & Profession’.
Q. Why is TDS on my monthly pay deducted at 10%?
The Income Tax Act requires that TDS should be deducted @10% for any payments made as fees for professional services.
Q. Is the professional income I earn considered differently?
Unless you are earning a professional income, which is part of an employment agreement, any income you earn by pursuing your profession skills shall be considered under the head Profits & Gains of Business & Profession.
Q. How does claiming expenses help me?
Claiming expenses that are directly related to your freelancing work, reduces your total income and tax thereon. Your Total Income less directly relatable expenses is your Income from your freelancing work.
Q. What is the ITR-4?
Anyone who is carrying on a business or profession is required to submit income tax return in the ITR-4 form.

In case of any query, feel free to ask them.⇓

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  • ajay

    Misleading headline- “Tax on Freelance income in India” and what do I see? I see “In this article we’ll be discuss only Income tax issues & in next article we’ll try to explain service tax on Freelancing”…..who are playing around with folks

    • Anonymous2306

      Please go through the lines properly..it says “we’ll try to explain service tax …in the next article”. This article completely justifies the headline. It is very helpful for those who are looking for income tax guidelines.