Income Tax Filing for Freelancers

Last Updated at: Jul 25, 2020
Income Tax Filing For Freelancers
As companies get more and more accustomed to virtual workforce and remote employment, demand for freelance workers is on the rise, and others are even trying to slash fixed payroll expenses since the Covid-19 outbreak.


There are wide differences between tax filing for salaried employees and freelancers. Salaried employees are in a designed structure where there is various administrative help to file their income tax returns and fulfil the formalities related thereto.

However, when it comes to freelancers, there comes the real challenge. Freelancing is an alternative source of income which has emerged over the past few years. Freelancing is a free and flexible field of work and is synonymous to self-employment. It is from a comfortable space and in addition to a full-time job that freelancing can be taken up. Freelancing is available in almost every fields, be it a practice in medicine or legal practitioners. However, there are many challenges which a freelancer faces while dealing with the intricacies of tax structure and tax returns. Here is a guide to Income Tax Filing for all freelancers out there:

Source of Income: The source of income is one of the major determinants which helps in filing tax for freelancers.  The nature of freelancing is such that it doesn’t require the person so employed to be present physically in the office space, neither are such employees entitled to the benefit schemes of the company. It is mostly a short-time contract-based agreement.  Therefore the income of these freelancers is based on the assignment they take up.

As per the Income Tax Act of 1961, taxable revenue is one which is generated by an individual by implementing their skills be it intellectual or manual. Such revenue is to be considered as revenue earned from a profession. Therefore, income so earned form a part of Individual’s gross income and are thus taxable as per the provisions of Income Tax Act, 1961 under the head of ‘Profits and Gains from Business or Profession’. The phrase ‘Total Gross Income’ anyways indicates the total invoices raised by the individual for the services they purport to have rendered. The proof of the invoices raised for professional services is the bank account of the freelancer.

E-file Your Income Tax Returns

Deductions and Expenses of the Freelancer-Individual: There are various deductions as well as the expenses of the freelancer which is to be deducted while computing the taxable income. The list of determination of the expenses of a freelancer is to be done keeping the following points in mind. Firstly, there has to be a direct proportion between the expenses and the amount spent on executing a particular task. The assessment year for such a determination will be throughout a full and complete tax year. The expenses as determined should be absolutely free of any capital or personal expenditures of the freelancer.

Moreover, the expenses should not be in furtherance of committing an offence as per the laws applicable in the country at that time. The said expenses may be treated as deductions while computing the taxable income of such an individual. Claiming these exemptions considerably decreases the tax liability of the individual-freelancer.

Claims on Tax Deduction at Source: There is no wide difference between the claim of Tax Deduction at Source [TDS] between the position of a regular salaried employee and that of a freelancer. The general rule of TDS is that there is a deduction of 10% right at the end of the employer, this deduction can be later claimed. Freelancers can also claim the TDS just like other salaried employees if so has been charged.

Filling ITR-4: Like the salaried employees are required to fill in the details in Form 16 for the purpose of taxation, the income tax form relevant to consultants and freelancers is Form ITR-4 and Section 194J of the Income Tax Act, 1961 which mandates the deduction of TDS from payments made for the services rendered. There has been a shift in position in the financial assessment year of 2017-18. The new approach is that the professional can opt for the situation of presumptive taxation. Individuals thus can declare 50% of their gross receipts from services as their income by the filing up of ITR-4.

Documents of Accounting: For freelancers, there are two types of accounting which can be considered. One is the cash basis of accounting and the other is the accrual basis of accounting. Both these manners of accounting have their own benefits as well as drawbacks. Therefore, based upon the source of the income, the nature of income etc., the best document of accounting must be chosen.


A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.