People are opting to work as independent contractors because it has given them the freedom to explore other passions, or maybe just get away from a monotonous routine. Being a freelancer, however, does not exempt you from paying taxes. According to the income tax legislation, it is necessary for freelancers to pay taxes.

What is a freelancer?

Freelancers are independent contractors that work from their homes, parks, or coffee shops to complete a range of assignments for a variety of clients. There are independent contractors in many different industries, including marketing, website design, consulting, software design, and social media content creation. However, this convenience doesn't come without cost because, in accordance with the Income Tax Act, freelancers must also pay taxes to the government for their earnings, just like any other businessperson or salaried employee.

Do Freelancers Have To Pay Tax in India?

What are Freelancer's income tax rules?

According to the Income-tax Act, any income obtained through the exercise of one's manual or mental faculties qualifies as income from a vocation. This revenue will be taxed as Profits and Gains from Business. The total of all receipts obtained while practising the occupation would represent the gross earning.

What is the Accounting process of a freelancer?

There are now two methods available for independent contractors to track their revenue and outgoings and determine their taxable income.

Both the cash and accounting basis is included. If the accounting method is chosen once, it must be used consistently for years. Freelancers cannot regularly change the method, for instance, in an effort to avoid paying taxes or save money.

Calculation of a Freelancer's Presumed Tax

The income of a freelancer may be presumed under Section 44ADA if their gross receipts are less than Rs. 50 lakhs. In this situation, taxable income is equal to 50% of gross receipts.

Net Taxable Income from Profit & Loss Account:

A freelancer may keep books of accounts if his annual gross revenues exceed Rs. 50 lacs or if he believes that his net profit is less than half of his annual gross receipts.

Freelancers' TDS deductions

Most clients deduct TDS from the freelancers' payments. When completing their ITR, freelancers can claim their TDS that was taken (Income Tax Return). The details of TDS deductions can be seen on Form 26AS. Form 26AS, which can be found on the Income Tax Portal, contains the total TDS deducted for the entire year.

Freelancers Advance tax

When the total amount of tax owed is Rs. 10,000 or more, the freelancer must pay it every three months. This tax is an advance tax and is paid each quarter.

First, all the receipts are pooled, the costs and TDS are subtracted, and then additional income from sources like rental property income, interest income, capital gains, etc. The sum is then calculated based on the tax bracket they fall within. The advance tax must be paid in case the sum is more than Rs 10,000.

Previously, freelancers were required to pay VAT and service tax. GST has replaced the old taxing system. GST stands for the Tax imposed on the Goods or Services provided. Freelancing, therefore, falls under the umbrella of service. Therefore, a GST of 18% is applicable to the majority of the services.

Depending on the location of the service, freelancers are responsible for paying CGST, SGST, and IGST. Even if the business is conducted online, there is no GST exemption available. Bloggers are still subject to GST regulations even whether they sell blog space locally or across state lines. Services must be registered under the GST Act if the total value exceeds Rs. 20 lacs annually. In Uttarakhand, Jammu & Kashmir, and Himachal Pradesh, this cap is set at Rs. 10 lakhs. For the products and services they utilise concurrently for their business, they can also claim input tax credits. Resulting in less GST.

Since freelancers take on a variety of projects and earn money from both domestic and foreign services, calculating their taxes can be challenging. Expert counsel is always advised in order to prevent any tax fines and to take advantage of the maximum amount of tax exemptions.

How To Save Tax When Freelancing?

Making claims for business-related expenses allows freelancers to reduce their tax burden. You can deduct expenses like phone bills, travel costs, internet costs, transportation costs, etc. as business-related costs. Freelancers are eligible for all additional deductions allowed by Section 80 of the Income Tax Act for salaried individuals. Just make sure that every bill is meticulously maintained so that it may be used as documentation for deductions.

According to Section 80C of the Income Tax Act, investments can be written by the freelancer.  Tax deductions are available for LIC policy purchases, equity-linked savings plan investments, PPF accounts, and more. However, Section 80C of the Income Tax Act has an Rs. 1.5 lakh restriction on the amount that can be deducted in its entirety. Under Section 80D, even health insurance premiums may be deducted. You are able to deduct any donations you make under Section 80G of the Income Tax Act.

There are now two methods available for freelancers to track their revenue and outgoings and determine their taxable income, which includes the actual basis and cash basis. If the accounting method is chosen once, it must be used consistently for years. You cannot regularly change the method, for instance, in an effort to avoid paying taxes or save money.

What Is the ITR Filing process for Freelancers?

ITRs may be filed by Freelancers working in the legal, medical, architectural, accounting, engineering, technical consulting, film, interior design, and related fields. However, freelancers from non-specified professions like CAs, doctors, and lawyers can also submit income tax forms.

Follow the steps given below on how to file ITR Tax for freelancers:

Step 1: Calculate the gross income for the given fiscal year, which runs from April 1 to March 31. Because they are not considered to be income, loans and other debt obligations should be excluded

Step 2: Calculate your business expenses to obtain a tax deduction.

Step 3: Select the appropriate form and fill it out with the required information.

Step 4: Complete the relevant information, including taxable income, deductions, costs, and paid advance tax.

The IT Department employees audit a person's income if they earn more than Rs. 1 crore in a fiscal year. In this scenario, people have until September 30 of the fiscal year to file ITRs. In addition, they have until July 31 to file an ITR if their income is not being audited.

Therefore, your intellectual or physical prowess may result in income that is considered "Profits and Gains of Business or Profession" and is subject to the appropriate taxation under Indian income tax regulations


I hope this piece of information was helpful to you in understanding the tax legalities pertaining to freelancers in India. Leave a comment below if you have any additional information or data to impart to the readers reading this article.

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