Income tax filing for self-employed

Last Updated at: Feb 19, 2021
Income tax filing for self-employed
The Income tax department of India conducted an e-campaign on voluntary income tax compliance from July 20, 2020 till the month-end concentrating on taxpayers who were either non-filers or who have inconsistencies or shortcomings in their FY 2018-19 returns.


As per the chartered accountants, the deadline for employers to issue the TDS certificate i.e. Form 16 for FY2019-20 to employees has been extended to June 30, 2020, via an ordinance dated March 31, 2020.


Are you running a self-employed business? Or are you a freelancer? There are many self-employed businesses and ideas around the globe which keeps spreading and flourishing every day.
Then have you filed your income tax? If not, let us see the guidelines for a self-employed person to file the Income Tax Return (ITR). 

What is Self-employment?

Self-employment is also a profession where you are the owner of your work. You don’t have to report to anyone and can decide anything when it comes to working. You remain to be the board of members in your self-employed business.

A self-employed person can be anyone who makes money out of their passion as a single proprietor. They are also called as a sole proprietor. You can call a person ‘Self-employed’ when he/she is a cab driver, freelancer, doctor, lawyer, chartered accountant, artist, trader, and so on.

Self-employment taxes

A self-employer has to pay his/her taxes by filing the income tax return form. A self employed is liable to pay tax when the gross income is more than Rs.2,50,000/year. After filing the tax return, automatically deduction of tax will occur, and you will get your net income amount. Self-employed or independently employed refers to an individual who offers his or her services to various firms without a long term contract. Income Tax Act, 1961, demand tax on the pay of self employed people under the head “Profit and increase from Business or Profession”.

The income of the individual is majorly grouped under the following types. The Income Tax Department can identify an assessee via an individual’s PAN (Permanent Account Number).

  1. Income from an individual’s Salary
  2. Income from an individual’s House Property
  3. Capital Gain from other resources
  4. Profit and gain from Business or Profession
  5. Income from Other sources

Benefit ought to be figured in the wake of deducting all misfortunes and costs met for procuring the revenue in the customary course of business, profession or employment. Proficient Income workers need to get their accounts evaluated by Chartered Accountant and submit assessment tax audit if their gross receipt is Rs.50 lakhs or more in a financial year.

What is the Income Tax Return?

When you are a self-employed one, filing income tax would be slightly confusing. It’s because you will be doing the whole work of an HR of a company. You will have to be careful while filing your income tax. For a self employed person, there are two Income Tax Return (ITR) forms which are:

  1. ITR – 3 or
  2. ITR – 4

You will have to be careful while choosing either of these two ITR forms for filing income tax.

Fundamentals of filing ITR

When you file your ITR on time, it adds as an extra reward to you. Before you get into filing your ITR, you need to know all your income sources. It could come from your salary or rent or other any other sources too. Secondly, find out which part of your income is taxable and which is not. For instance, income tax applies to your basic salary, allowance, bonuses, etc. Housing rent allowance is not taxable. The last but important part of filing the ITR is identifying your deductions. You are eligible for income tax deductions if you invest in saving schemes, insurance policies or even contributing to relief funds. Taxes are applied to your taxable income. However, sometimes taxes are deducted at source (TDS). The details of all your TDS is accessible in Form 16.

E-file Your Income Tax Returns

Presumptive Taxation

The government has brought in a scheme called ‘Presumptive Taxation Scheme’ for the taxpayers’ benefit. Usually, according to Section 44AA, the self-employer has to have books for accounts. Moreover, it has to contain a detailed record of accounts for the income tax purpose. But after releasing the Presumptive Taxation Scheme, the self-employer will be relieved from the burden of maintaining account records. There are a few sections which follow the scheme where each section follows a condition. They are:

  • Section 44AD
  • Sec. 44ADA
  • Section 44AE
  • Sec. 44BB
  • Section 44BBB

The benefit is said to be at 8% of gross receipts for business and half of the gross receipts of vocation in a financial year. Similarly, they need to settle Income tax according to Income assessment rates pertinent to them. 

Tax deducted at source

However, when you accept a payment from a client, you will consequently obtain it after deduction of tax (TDS). Be aware of Section 194J of the Income Tax Act that mandates TDS from payments made to professionals. Usually, TDS will be deducted at the rate of 10% on the payments that you make. Alike the salaried individuals, even you can also claim a refund on the TDS that is deducted on your behalf. You can claim through the process of e-filing of your tax returns, which is a piece of good news.



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