Freelancer Tax India – How to File ITR for Freelancers?

The tax filing procedure differs for people who earn a salary and those who do a freelancing job; VakilSearch helps you file for ITR quickly and efficiently.

When submitting their income tax returns or ITR, salaried employees make it easy. The company’s HR department is responsible for providing Form16 notifications and instructions on tax filing timelines and tax deductions. Freelancers and advisors, who typically have multiple clients and receive revenue from various sources, find it a little complicated. We have tried to make the ideas and procedures for independent contractors simple in this text. According to the IT Act, taxation for freelancers in India must also pay taxes and file income tax returns.

The tax filing procedure differs for people who earn a salary and those who do a freelancing job. 

Freelancer Tax in India

Freelancers in India are required to pay income tax on their earnings as they are considered self-employed individuals. Here are some key tax rules and guidelines for taxation for freelancers in India:

1. Tax Slabs: Freelancers are taxed according to the income tax slabs applicable for the financial year. As of 2021-22, the tax rates are as follows:

• • Up to Rs. 2.5 lakh: Nil
  • Rs. 2.5 lakh – Rs. 5 lakh: 5%
  • Rs. 5 lakh – Rs. 7.5 lakh: 10%
  • Rs. 7.5 lakh – Rs. 10 lakh: 15%
  • Rs. 10 lakh – Rs. 12.5 lakh: 20%
  • Rs. 12.5 lakh – Rs. 15 lakh: 25%
  • Above Rs. 15 lakh: 30%

2. Deductions: Taxation for freelancers can claim deductions for expenses incurred for their business, such as office rent, equipment, and software expenses, under Section 80C, 80D, 80E, and other sections of the Income Tax Act. Freelancers can also claim a standard deduction of Rs. 50,000 in addition to the expenses mentioned above.
3. TDS: If the annual income of the freelancer exceeds Rs. 2.5 lakhs, they are required to deduct tax at source (TDS) on payments received from clients. The TDS rates are typically 10%, but may vary based on the nature of the service provided.
4. Advance Tax: Taxation for freelancers are required to pay advance tax in installments if their total tax liability is expected to be Rs. 10,000 or more. The due dates for advance tax payments are June 15th, September 15th, December 15th, and March 15th.
5. Filing ITR: Freelancers must file their income tax returns (ITR) online by the due date, typically July 31st of each year. The ITR form depends on the taxation for freelancers income and business structure. Failure to file ITR on time may result in penalties and legal consequences.

It is recommended that taxation for freelancers maintain proper records of their income and expenses and seek the advice of a qualified tax professional to ensure compliance with tax regulations.

Your income falls under Profits & Gains of Business & Profession if you make money using physical or cognitive skills. You must consider yourself an entrepreneur in terms of taxation for freelancers in India. You have clients in the same manner as a business does, and you must owe tax on the profits you make from various customers.

How to File ITR for Freelancer?

As a freelancer, you are considered self-employed and are required to file an income tax return (ITR) in India. Taxation for Freelancers: Here’s a step-by-step guide to help you file your ITR:

1. Gather all necessary documents: You’ll need to collect all the necessary documents like your income statement, invoices, receipts, bank statements, and TDS certificates.
2. Determine the correct ITR form: As a freelancer, you will likely file ITR-3 or ITR-4, depending on your income and business structure.
3. Calculate your taxable income: You’ll need to calculate your total income, including all sources of income, such as freelance earnings, interest income, and capital gains.
4. Deduct your expenses: You can deduct business expenses related to your freelance work, such as office rent, equipment, and software expenses, from your total income.
5. Calculate your tax liability: Based on your taxable income, you can calculate your tax liability using the income tax slabs and rates applicable for the financial year.
6. Pay any outstanding tax: If you have any outstanding tax liability, make sure to pay it before filing your ITR.
7. File your ITR online: You can file your ITR online through the Income Tax Department’s e-filing website or by using a third-party tax filing service. Make sure to enter accurate information in the ITR form and verify it using your digital signature or Aadhaar-based OTP.
8. Submit your ITR: After completing and verifying your ITR form, submit it to the Income Tax Department. You’ll receive an acknowledgment receipt, which you should save for future reference.
9. Keep records of your ITR: Keep copies of all documents, receipts, and ITR forms for future reference and tax audits.

It’s important to file your ITR on time to avoid penalties and legal issues. The due date for filing Taxation for Freelancers is typically July 31st of each year, but it may vary depending on the financial year and the type of taxpayer.

Freelancer Tax in India, Should Freelancers File TDS Return?

Yes, freelancers are required to file TDS (Tax Deducted at Source) returns if they have deducted tax at source from the payments they have made to professionals who have provided services to them. TDS applies to payments made to professionals exceeding Rs. 30,000 per transaction or in aggregate during a financial year, at the rate of 10%. The deducted tax at source must be deposited with the government and TDS returns must be filed.

However, freelancers are only required to deduct tax at source if they have been audited during the previous financial year and their annual gross receipts exceed Rs. 50 lakh. If their annual gross receipts are below Rs. 50 lakh and they have not been audited, there is no need to deduct tax at source. In case TDS is applicable, the freelancer needs to ensure that they check for the applicability of TDS on all payments covered under the provisions of TDS, deposit the tax deducted, and file TDS returns.

Freelancer Tax: Making expenditures claims lowers your tax bill.

As mentioned above, you only have to pay taxes on your profit of taxation for freelancers in India. You can deduct the costs you expend for work-related expenses to lower your tax liability. These costs fall under the categories of rent, maintenance, office, depreciation, travel, food, hospitality, and leisure costs.

PAN Card for Tax Payment and Income Tax Return Filing

Every taxpayer has a personal identification number (PAN) card. Each citizen in this country will receive a unique PAN Card Number, which is the only way for the government to determine who already has paid their income tax. There is only one PAN Card No granted per person.

Every taxpayer must register for a PAN card, which can be done online. This is a one-time procedure, and your PAN card number will remain the same for life. The application process of its preparation is simple, and applications may be submitted offline and online. The application fee for a PAN card is Rs. 96, which is quite affordable.

Taxation for Freelancers: TDS is levied from your pay

Freelancer Tax in India – According to Section 194J of the Income Tax Act, you must deduct 10 percent TDS (Tax Deducted from Source) taxation for freelancers in India from each professional service you provide. You, too, can request a TDS return, just like any salaried worker.

The Advantages of Filing an Income Tax Return

The most significant advantage of tax payments and submitting the income tax return is that the money you declare on your income tax return is your revenue. Only the amount stated in your income tax return might be legitimate evidence of your earnings if you ever need to verify it.

Furthermore, if you seek a loan from the bank, you must present your taxation for freelancers in India to authorities, and only the amount reported in the income tax return will be regarded as a legal source of income.

The government spends a lot of money on things like building roads and airports and bears these costs out of tax revenue. The government has a legal obligation to collect tax; if you fail to do so, they may give you a vigilance warning and order that you settle your unpaid taxes in addition to fines and harsh penalties.

Therefore, it is strongly advised for everyone who earns a living to file their income tax forms with the government before the deadline.

Income Tax Calculation

Individuals who receive money from any account must pay income tax returns at the government’s established tax rates. The sum of all total revenue generated by a freelancer must be considered for calculating the amount on which tax must be charged. Please be aware that income taxation for freelancers in India is only due on the whole earnings generated, not the total amount of income received. Total income is the amount gained after depreciation and paying for expenses incurred to earn the revenue, while Total Revenue is the gross amount produced.

Wear And Tear Of Assets

Freelancer agreement also invests in assets in order to generate revenue. Therefore, you are permitted to deduct this type of expense from the assessment of overall revenue if you have bought any assets with the objective of earning income, such as a mobile phone, laptop, automobile, office equipment, etc.

Use the Income tax calculator on Vakilsearch to quickly calculate your taxes and submit your ITR.

But because these assets typically have a lifetime longer than a year, the advantage from the money expended on them would last for longer than a year. The cost incurred must also be credited for more than one year because the benefit would accrue over time.

When an expense is levied to purchase fixed assets, you are not permitted to claim the entire payment at once. The total cost of the asset’s acquisition is spread across its tenure, and you are entitled to deduct this cost progressively during its lifespan.

Expenses That Can Be Subtracted From Income When Calculating Taxes

Taxation for Freelancers India – Any sum paid to generate income may be written off as an expenditure. The following are a few instances of expenses that are permitted:

• Expenses associated with web servers, domain purchases, website design, etc.
• Rent costs
• Telephone, Electricity, internet, and water bill
• Employee salaries
• Fuel and diesel costs
• Any additional costs invested with the intention of generating income

Kindly be informed that only costs incurred to generate revenue may be written off as an expenditure.

Deadline For Income Tax Payment

All taxpayers are obligated to pay income tax in the year they earn their income taxation for freelancers in India. If the total tax due for the year exceeds Rs. 10,000, he must pay it in installments throughout the year.

Deadline dates have been established for the payment of tax liabilities during the year. This type of income tax payment is known as advance tax. Admitting the Challan Form on the NSDL website allows advance tax payments to be paid online.

Freelancer Tax: Applicability to File for Freelancers

The ITR-3 and ITR-4 income tax forms must be completed and submitted by independent contractors and consultants. ITR-3 covers income from a company or occupation. Professionals can choose presumptive taxes starting in AY 2017–18/ FY 2016–17 and disclose half of the total of their gross receipts as their revenue by filing ITR–4.

Conditions to Claim Expenses as a Deduction From Freelancing Income

• Taxation for Freelancers in India, claiming expenses as deductions from your freelancing income can significantly reduce your tax liability. However, certain conditions must be met before claiming these expenses as deductions.
• To claim an expense as a deduction, the expense should be incurred wholly and exclusively for your freelancing business. This means that the expense must be necessary for your freelancing work and should not be personal.
• For example, if you work from home, you can claim a portion of your rent or electricity bill as a deduction from your taxation for freelancers income. Similarly, use your vehicle for your freelancing work. You can claim vehicle expenses, such as fuel, repairs, and insurance, as deductions.
• However, you cannot claim certain expenses as deductions, such as personal expenses like food, clothing, and personal grooming. 
• Additionally, expenses incurred for illegal activities or unrelated to your freelancing work are not eligible for deductions.
• Maintaining proper documentation for all expenses claimed as deductions, including receipts, invoices, and bills, is important. This documentation can be used to support your claim in case of any scrutiny or audit by the tax authorities.

Expenses That Can Be Claimed as a Deduction Against Income

Taxation for Freelancers – As a freelancer in India, there are various expenses that you can claim as deductions against your income to reduce your tax liability. 

Here are some of the common expenses that are eligible for deductions:

1. Office Rent: If you rent an office space to do your freelancing work, you can claim the rent paid as a deduction.
2. Office Expenses: Expenses such as office supplies, internet and phone bills, and computer equipment and software can be deducted.
3. Travel Expenses: If you travel for business purposes, expenses such as airfare, hotel stay, and meals can be claimed as deductions.
4. Marketing and Advertising Expenses: Expenses incurred for advertising your taxation for freelancers services, such as printing flyers or running Facebook ads, can be deducted.
5. Professional Development Expenses: Attending workshops, conferences, or courses to improve your skills can be claimed as deductions.
6. Insurance Premiums: The premiums can be deducted if you have taken insurance for your business or equipment.

How Do Claim Expenses Common to Both Personal and Professional Purposes?

• Some expenses, such as a phone or internet bill, may be used for personal and professional purposes. In such cases, you can claim a portion of the expense as a deduction against your freelancing income.
• To claim expenses common to personal and professional purposes, you need to maintain a record of the proportion of usage of that expense for your freelancing work. For example, use your internet connection for your taxation for freelancers work 60% of the time. You can claim 60% of the expense as a deduction.
• To calculate the usage percentage, you can maintain a logbook or spreadsheet that records the time spent on each activity or asset usage. Alternatively, you can use a reasonable estimate of the proportion of usage based on your work patterns.
• It’s important to note that the percentage of usage claimed should be reasonable and supported by evidence, such as a logbook or past bills. Suppose the percentage of usage claimed is deemed unreasonable by the tax authorities. In that case, it may lead to rejection of the claim or penalties.
• Seeking advice from a tax professional can ensure that you claim expenses accurately and maximise deductions while minimising tax liability. You can contact Vakilsearch tax experts for better insights and assistance with bookkeeping and accounting.

Expenses That Are Explicitly Disallowed to Be Deducted From Your Income

Certain expenses are explicitly disallowed to be deducted from your income, such as personal and capital expenses and expenses unrelated to the business. 

Examples of personal expenses include rent for your personal residence, personal grocery bills, and entertainment expenses. Capital expenses are expenses incurred on assets used for the long-term, such as buying a property or a vehicle. Expenses unrelated to the business include donations to political parties, fines, and penalties. It is important to keep a record of these expenses separately from your business expenses to ensure everything is clear during tax filing.

Conditions to Claim Expenses as a Deduction From Freelancing Income

As a freelancer, you may be eligible to claim certain expenses as deductions from your taxation for freelancers income. These deductions can help reduce your taxable income, potentially lowering your overall tax liability. However, it’s essential to ensure that you meet the specific conditions set by your country’s tax laws. Since tax laws can vary between countries and even regions, it’s essential to consult with a tax professional or accountant familiar with your local tax regulations for the most accurate advice. Nevertheless, here are some common conditions that often apply:

1. Ordinary and Necessary: Expenses claimed must be ordinary and necessary for your freelancing business. “Ordinary” means common and accepted in your industry, while “necessary” means helpful and appropriate for conducting your freelancing activities.
2. Business Expenses: The expenses must be directly related to your freelancing business. Personal expenses are generally not deductible.
3. Proper Records and Documentation: Keep detailed records and proper documentation for all expenses you wish to claim as deductions. This includes receipts, invoices, mileage logs, and any other relevant documentation.
4. Exclusively for Business Use: Expenses must be used solely for business purposes. If you use something for both personal and business purposes, you can only deduct the portion used for business.
5. Home Office Deduction (if applicable): If you work from a home office, you may be eligible for a home office deduction. The space you claim must be used exclusively and regularly for business purposes.
6. Travel Expenses: If you travel for business purposes, you may be able to deduct expenses such as transportation, meals, and accommodations. Make sure the trips are primarily for business and not personal purposes.
7. Business Equipment: Expenses related to purchasing and maintaining business equipment, such as computers, software, and other tools necessary for your freelancing work, may be deductible.
8. Professional Services: You can deduct fees paid to professionals, such as accountants or lawyers, who provide services related to your freelancing business.
9. Insurance Premiums: Premiums paid for business insurance, such as liability or professional indemnity insurance, may be deductible.
10. Marketing and Advertising: Expenses incurred for marketing and advertising your freelancing services are generally deductible.
11. Training and Education: Costs associated with improving or maintaining your skills relevant to your freelancing work may be deductible.
12. Subcontractor Payments: If you hire subcontractors to assist with your freelancing projects, their payments may be deductible as a business expense.

Expenses That Can Be Claimed as a Deduction Against Income

As a freelancer or self-employed individual, you can claim various expenses as deductions against your income to reduce your taxable income. Again, the specific expenses you can claim may vary depending on your country’s tax laws and regulations. Always consult with a tax professional or accountant to understand the deductions applicable to your situation. However, here are some common expenses that freelancers often claim as deductions:

1. Home Office Expenses: If you work from a home office, you may be able to claim expenses related to that space, such as a portion of rent, utilities, property taxes, and home insurance. The space must be used exclusively and regularly for your freelancing business.
2. Business Supplies: Expenses for office supplies, stationery, printer ink, software subscriptions, postage, and other necessary business supplies are usually deductible.
3. Business Equipment: The cost of purchasing and maintaining business equipment, such as computers, laptops, cameras, and other tools used for your freelancing work, may be deductible.
4. Travel Expenses: If you travel for business purposes, you can deduct expenses such as transportation, mileage (if using your vehicle), meals, and accommodations. Ensure the trips are primarily for business, not personal reasons.
5. Professional Services: Fees paid to professionals, including accountants, lawyers, and consultants, who provide services related to your freelancing business can be deductible.
6. Marketing and Advertising: Expenses for promoting your freelancing services, including website costs, advertising, business cards, and online marketing, are usually deductible.
7. Insurance Premiums: Premiums paid for business insurance, such as liability, professional indemnity, or business owner’s policy, may be deductible.
8. Subcontractor Payments: If you hire subcontractors to help with your freelancing projects, the payments made to them are typically deductible.
9. Training and Education: Costs associated with improving or maintaining your skills relevant to your freelancing work may be deductible.
10. Membership Dues: Fees paid for professional memberships or subscriptions related to your freelancing business can be deductible.
11. Bank and Payment Processing Fees: Charges incurred for bank account maintenance or payment processing services may be deductible.
12. Rent for Business Premises: If you have a separate office or workspace outside your home, the rent for that space may be deductible.
13. Utilities and Phone Expenses: If you have a dedicated business phone or use utilities (internet, phone) for business purposes, a portion of these expenses may be deductible.
14. Meals and Entertainment (Partially): Some countries allow a partial deduction for business-related meals and entertainment expenses.
15. Retirement Contributions: If you contribute to a retirement plan for self-employed individuals (e.g., SEP-IRA, Solo 401(k)), the contributions may be deductible.

Books of Accounts for Freelancers

As a freelancer or self-employed individual, maintaining proper books of accounts is essential for managing your finances, tracking income and expenses, and fulfilling your tax obligations. While the specific requirements may vary based on your country’s tax laws, here are some common types of books and records that freelancers typically keep:

1. Income Ledger: Keep a record of all your freelance income, including payments from clients, royalties, or any other sources of income related to your taxation for freelancers activities. This ledger should include details such as the date of income received, the client’s name or source of income, and the amount received.
2. Expense Ledger: Maintain a ledger to record all business-related expenses. Categories your expenses, such as office supplies, equipment, travel, marketing, professional fees, and others. Include the date of the expense, the payee’s name, a description of the expense, and the amount spent.
3. Bank Statements: Keep copies of your bank statements, which serve as evidence of income received and expenses paid. These statements help reconcile your income and expenses recorded in your ledgers with actual transactions.
4. Invoices and Receipts: Retain copies of invoices issued to clients for your services and receipts for business-related expenses. These documents provide a paper trail and support your income and expense records.
5. Contracts and Agreements: Maintain copies of contracts or agreements with clients or other parties. These documents outline the terms of your freelancing engagements and can help resolve any disputes that may arise.
6. Mileage Log (if applicable): If you use your vehicle for business purposes, keep a mileage log that records the distance travelled for business-related trips. This log can be used to calculate the deductible mileage expense.
7. Home Office Records (if applicable): If you claim a home office deduction, maintain records related to your home office, such as the square footage of the office space and supporting documents for home-related expenses (e.g., rent, utilities).
8. Tax Filings: Keep copies of your filed tax returns and any relevant tax documents, such as W-9 forms from clients, 1099-MISC or 1099-NEC forms received, or any other tax-related correspondence.
9. Business Journals or Logs: Some freelancers find it helpful to keep a business journal or log where they note important business decisions, strategies, and milestones.
10. Payroll Records (if you have employees): If you have employees or subcontractors, keep payroll records, including wages, taxes withheld, and other compensation-related information.
11. Financial Statements: Prepare and maintain financial statements, such as profit and loss statements (income statements) and balance sheets, to understand your business’s financial health.

Accrual Basis of Accounting Vs Cash Basis of Accounting

Aspect	Accrual Basis of Accounting	Cash Basis of Accounting
Revenue Recognition	Revenue is recognized when it is earned, regardless of cash receipt.	Revenue is recognised only when cash is received.
Expense Recognition	Expenses are recognized when they are incurred, regardless of cash payments.	Expenses are recognised only when cash is paid.
Timing of Transactions	Transactions are recorded when they occur, regardless of cash movements.	Transactions are recorded only when cash is exchanged.
Matching Principle	Follows the matching principle, matching revenues with related expenses.	Does not strictly follow the matching principle.
Accuracy of Financials	Provides a more accurate representation of financial performance and position.	May not accurately reflect financial performance and position due to timing differences.
Financial Statements	Generates comprehensive financial statements, including income statement, balance sheet, and cash flow statement.	May lack detailed financial information and may only include an income statement.
Suitable for	Generally used by larger businesses and entities with significant credit transactions.	Often used by small businesses or entities with straightforward cash transactions.
GAAP Compliance	Compliant with generally accepted accounting principles (GAAP) in many countries.	May not comply with GAAP in some regions.
Financial Planning	Facilitates better financial planning and decision-making.	May not provide an accurate basis for financial planning.
Complexity	Can be more complex to implement and maintain due to timing differences.	Simpler to implement and maintain due to direct cash recording.

How to Choose an Accounting Method?

Choosing the right accounting method is an important decision for any business. The accounting method you select will impact how you record and report your financial transactions, affecting your financial statements, tax liabilities, and overall business operations. Here are some steps to help you choose the most suitable accounting method for your business:

1. Understand the Different Methods: Familiarize yourself with the two primary accounting methods: accrual basis and cash basis. Understand their key differences, as explained in the previous response, and how they impact your financial reporting.
2. Business Size and Complexity: Consider the size and complexity of your business. Accrual accounting is generally more suitable for larger businesses with numerous transactions and accounts payable/receivable. Cash accounting might be appropriate for smaller businesses with straightforward cash transactions.
3. Nature of Operations: Evaluate the nature of your business operations. If you provide services or products on credit and have significant accounts receivable and payable, the accrual method may better match your revenue and expenses.
4. Industry Norms and Regulations: Research the accounting practices common in your industry. Some industries may have specific accounting requirements or regulations that favor one method over the other.
5. Tax Implications: Understand the tax implications of each accounting method. Some tax authorities may require businesses to use a specific method, while others may allow a choice. Consider how each method affects your taxable income and tax liability.
6. Financial Reporting Needs: Assess your financial reporting needs. If you need more comprehensive financial statements for investors, lenders, or other stakeholders, the accrual method may provide a clearer picture of your financial performance.
7. Consistency and Change: Once you choose an accounting method, it’s generally best to stick with it consistently. Changing accounting methods may require approval and can be complex. Consider the long-term implications before making a decision.
8. Consult with an Accountant: Seek advice from a qualified accountant or tax professional. They can help you understand the nuances of each method and provide insights tailored to your specific business situation.
9. Future Growth Plans: Consider your business’s growth plans. If you anticipate significant growth or plan to go public in the future, the accrual method may be more suitable for handling increased financial complexities.
10. Compliance and GAAP: Ensure that your chosen accounting method complies with applicable accounting standards and generally accepted accounting principles (GAAP) in your country or region.

How to Choose an Accounting Method?

As a freelancer, you can choose between two accounting methods: cash accounting and accrual accounting. Here’s a brief overview of each method:

1. Cash Accounting: Under this method, you record income and expenses when they are received or paid. This means that you only record income when you receive payment for your services and expenses when you actually pay for them.
2. Accrual Accounting: Under this method, you record income and expenses when they are earned or incurred, respectively. This means that you record income when you complete your services, regardless of when you receive payment, and expenses when you receive an invoice, regardless of when you actually pay for them.

Choosing the right accounting method depends on the nature of your freelance business and your financial goals. Cash accounting may be more suitable if you have a small freelance business and want to simplify your bookkeeping. Accrual accounting may be more appropriate if you have a larger freelance business and you want to track your income and expenses more accurately.

It’s important to note that once you choose an accounting method, you must stick to it unless you get permission from the tax authorities to switch to another method. To make an informed decision, you should consult with a tax professional or an accounting expert, like the ones available at Vakilsearch, who can guide you through the process and help you choose the accounting method that’s right for you.

Total Taxable Income and Tax Payable

Your total taxable income is the sum of your income from all sources, including freelancing income, after deducting any allowable expenses. The tax payable is calculated based on the applicable income tax rates, which are determined based on your income level.

To calculate your total taxable income, you first need to determine your gross income from all sources. This includes income from freelancing, as well as income from any other sources, such as rental income, interest income, or capital gains. Once you have your gross income, you can deduct any allowable expenses, such as business-related expenses, to arrive at your net income.

The tax payable on your net income is determined based on the income tax rates for the financial year. The income tax rates in India are divided into slabs based on income levels, with higher income levels taxed at higher rates. As a freelancer, you must also pay an additional 4% health and education cess on your income tax liability.

Ensure that you are correctly calculating your total taxable income and tax payable. It is recommended to seek the assistance of a tax professional. Vakilsearch tax experts can assist you in determining your taxable income, calculating your tax liability, and filing your income tax return in compliance with the applicable tax laws.

Tax Payable by a Freelancer

The tax payable by a freelancer in India depends on various factors, including their total taxable income, applicable tax rates, and any available deductions or exemptions. As a freelancer, your tax liability is determined based on the income tax rates set by the government for the relevant financial year. These rates are divided into income slabs, and the tax rates increase progressively with higher income levels.

In addition to the income tax, freelancers must also pay a 4% health and education cess on their income tax liability. To calculate your tax payable, you need to determine your total taxable income by considering all sources of income and deducting any allowable expenses or deductions. Once you have determined your taxable income, you can apply the applicable income tax rates to calculate your tax liability. It’s important to note that tax laws and rates may change from year to year, so it’s recommended to consult a tax professional or refer to the latest guidelines from the Income Tax Department to determine your tax liability as a freelancer accurately.

Vakilsearch tax experts can provide personalised assistance and guidance to freelancers in calculating their tax liability, optimising deductions, and ensuring compliance with tax laws to help minimise their tax burden while fulfilling their tax obligations.

How to Calculate Advance Tax?

Calculating advance tax as a freelancer involves estimating your total taxable income for the financial year and determining the amount of tax you must pay in advance to meet your tax obligations. 

Here’s a general process to calculate advance tax:

1. Estimate your Income: Project your total income for the financial year, considering your freelancing income, income from other sources, and any expected changes in your financial situation.
2. Deduct Allowable Expenses: Determine the deductions and exemptions applicable to you as per the income tax laws and subtract them from your estimated income. This will give you your estimated total taxable income.
3. Calculate Tax Liability: Apply the income tax rates applicable to your income slab for the financial year to your estimated total taxable income. This will give you an estimate of your tax liability.
4. Consider Tax Credits: If you are eligible for any tax credits, such as TDS (Tax Deducted at Source) or foreign tax credits, subtract them from your tax liability to arrive at your net tax payable.
5. Determine Advance Tax Instalments: Divide your net tax payable into appropriate installments based on the due dates specified by the Income Tax Department. Typically, advance tax payments are made in installments throughout the financial year.

The Due Date for Advance Tax

The due dates for advance tax payments depend on the financial year and the type of taxpayer. For individual and freelancers, the due dates for advance tax are generally as follows:

1. For the First Installment: On or before 15th June of the financial year.
2. For the Second Installment: On or before 15th September of the financial year.
3. For the Third Installment: On or before 15th December of the financial year.
4. For the Fourth Installment: On or before 15th March of the financial year.

It’s important to note that if your total tax liability is less than ₹10,000, you are not required to pay advance tax and can instead pay the entire tax liability at the time of filing your income tax return.

It’s recommended to stay updated with the latest guidelines and due dates provided by the Income Tax Department, as they may be subject to change. Additionally, consulting a tax professional or referring to official tax resources can help ensure accurate information and timely compliance with advance tax payment requirements.

How to Pay Advance Taxation for Freelancers?

To pay advance tax as a freelancer in India, you can follow these steps:

• Estimate your Income: Estimate your total income for the financial year, taking into account your freelancing income and any other sources of income.
• Calculate your Tax Liability: Calculate the estimated tax liability for the financial year by applying the applicable income tax rates to your estimated total taxable income. Consider any deductions or exemptions that apply to you.
• Determine the Due Dates: Refer to the due dates for advance tax payments specified by the Income Tax Department. Generally, the due dates are in June, September, December, and March of the financial year.
• Make Advance Tax Payments: There are various modes of payment available to pay your advance tax:

1. 1. Online Payment: You can pay advance tax online through the Income Tax Department’s website or the designated bank’s website. This can be done via internet banking, debit card, or credit card.
   2. Physical Payment: You can also visit the authorized bank branches and make the advance tax payment in person. Fill out the relevant challan form and submit it along with the payment.

• Provide the Necessary Details: While making the advance tax payment, ensure you provide accurate details such as your PAN (Permanent Account Number) and the relevant assessment year.
• Keep Records: Maintain a record of the advance tax payments made, including payment receipts or challans. These records will be required when filing your income tax return.

It’s advisable to consult a tax professional or refer to the official guidelines provided by the Income Tax Department for detailed instructions and to ensure compliance with the advance tax payment process.

Penalties for Non-payment of Taxation for Freelancers

Freelancer Tax in India – Failure to pay advance tax or underpayment of advance tax may result in penalties as per the Income Tax Act in India. The penalties vary based on the specific circumstances and the amount of tax that remains unpaid. Here are the penalties for non-payment or underpayment of advance tax:

1. Interest Under Section 234B: If the total advance tax paid by an individual or taxation for freelancers is less than 90% of the assessed tax liability, interest under Section 234B will be applicable. The interest is charged at the rate of 1% per month or part thereof on the unpaid tax amount, calculated from the due date of the installment until the date of actual payment of the remaining tax liability.
2. Interest Under Section 234C: If the advance tax paid by an individual or freelancer in subsequent installments is less than the prescribed percentages, interest under Section 234C will be levied. This interest is charged at specific rates for each installment and is calculated on the difference between the actual tax liability and the advance tax paid.
3. Penalty Under Section 234A: If the individual or taxation for freelancers fails to pay the entire tax liability or fails to pay the final installment of advance tax, a penalty under Section 234A may be imposed. The penalty is charged at a rate of 1% per month or part thereof on the outstanding tax amount, calculated from the due date of filing the return until the date of actual payment.

It’s important to note that the exact penalties may vary based on the specific circumstances and the discretion of the tax authorities. It’s advisable to consult a tax professional or refer to the official guidelines provided by the Income Tax Department for accurate information on penalties and to ensure compliance with advance tax payment requirements.

Applicability of GST to Freelancers

The applicability of Goods and Services Tax (GST) to freelancers in India depends on their annual turnover and the nature of their services. Here are some key points regarding the applicability of GST to freelancers:

1. Threshold Limit: If your annual turnover of taxable supplies of goods or services exceeds Rs. 20 lakh (Rs. 10 lakh for special category states), you are required to register for GST and charge GST on your services.
2. Voluntary Registration: Even if your turnover does not exceed the threshold limit, you have the option to voluntarily register for GST. This can be beneficial if you work with clients who are registered under GST, as it allows you to claim input tax credits on your business expenses.
3. GST Rates: The GST rates applicable to freelancers can vary depending on the nature of services provided. Commonly, services fall under the 18% GST rate, while certain services may be charged at 5% or 12% rates.
4. GST Compliance: Once registered under GST, freelancers must fulfill compliance requirements, such as issuing proper tax invoices, maintaining records of inward and outward supplies, and filing regular GST returns.

It’s important to note that specific rules and regulations related to GST may evolve, and it’s advisable to consult a tax professional or refer to the official guidelines provided by the GST authorities for the most up-to-date information regarding the applicability of GST to freelancers.

Should Freelancers File TDS Return?

Freelancers in India are generally not required to file TDS (Tax Deducted at Source) returns because they are typically the recipients of payments rather than the deductors. TDS is a mechanism by which the payer deducts a certain percentage of tax from the payment made to the payee and remits it to the government.

However, there is an exception to this rule. If a freelancer is registered as a business entity (e.g., a company or a partnership firm) and receives payments for professional or technical services, the payer may be required to deduct TDS under Section 194J of the Income Tax Act. In such cases, the freelancer would need to file TDS returns to report the tax deducted and comply with the TDS provisions.

It’s important for taxation for freelancers to communicate with their clients or payers to understand if TDS is applicable to their payments and whether the payer is deducting TDS on their income. If TDS is deducted, the freelancer should ensure they receive a TDS certificate (Form 16A) from the payer, which serves as proof of TDS deduction.

While freelancers may not be required to file TDS returns themselves in most cases, they should still maintain proper records of income, TDS deductions (if any), and TDS certificates received for their own reference and for filing their own income tax returns.

Vakilsearch tax experts can provide guidance specific to your situation and help you understand the TDS provisions applicable to freelancers, ensuring compliance with tax laws and addressing any concerns you may have related to TDS.

Should Freelancers File TDS Return?

Income Range	Income Tax Rates
Up to ₹3,00,000	Nil
₹3.00,000 to ₹6,00,000	5% on income which exceeds ₹ 3,00,000
₹6,00,000 to ₹ 900,000	₹15,000 + 10% on income more than₹ 6,00,000
₹ 9,00,000 to₹12,00,000	₹45,000 + 15% on income more than ₹ 9,00,000
₹2,00,000 to ₹1500,000	₹90,000 + 20% on income more than ₹12,00,000
Above ₹15,00,000	₹ 150,000 + 30% on income more than₹ 15,00,000

Income Tax Filing Taxation for Freelancers Process

1. Gather Necessary Documents: Collect all the relevant documents, such as your PAN card, Aadhaar card, bank statements, details of income earned, TDS certificates (if applicable), and any other supporting documents related to your income and expenses.
2. Determine the Applicable Tax Return Form: Identify the appropriate income tax return (ITR) form based on your income sources and the nature of your freelancing work. For example, taxation for freelancers with business income can use ITR-3 or ITR-4, depending on their eligibility.
3. Calculate Total Income: Compute your total income by combining all your income sources, including freelancing income, salary (if applicable), interest income, rental income, and any other income.
4. Compute Deductions and Exemptions: Identify the deductions and exemptions available to you under the Income Tax Act, such as Section 80C (for investments), Section 80D (for health insurance premiums), and Section 10 exemptions. Calculate the eligible amount for each deduction and exemption.
5. Prepare the Income Tax Return: Use the selected ITR form to fill in the necessary details, including personal information, income details, deductions, and exemptions. Ensure accurate reporting of income and expenses.
6. Validate and File the Return: Review the filled-in return form for accuracy and validate it using the available online/offline validation methods. Once validated, submit the return electronically on the Income Tax Department’s e-filing portal or physically submit the return to the designated income tax office.
7. Verification and Acknowledgment: After filing the return, verify it using either electronic verification methods (such as Aadhaar OTP or net banking) or by sending a signed physical copy of the acknowledgment to the income tax department within the specified time.
8. Keep Records and Follow Up: Maintain a copy of the filed return, acknowledgment receipt, and all supporting documents for future reference. Follow up with any notices or communications from the income tax department, if required.

Conclusion for Taxation for Freelancers in India

The post, as mentioned above, has been streamlined to make learning more convenient for non-finance individuals while still providing a basic overview of how income taxation for freelancers in India is computed on revenues from freelancing. If you still have doubts about taxes and tax returns, you should visit Vakilsearch. Vakilsearch will assist you in making legal compulsions simple and easy, including ITR.

FAQs for Taxation for Freelancers

Do freelancers need to pay taxes in India?

Yes, freelancers in India must pay taxes on their income. Freelancers are considered self-employed individuals and are responsible for paying their own taxes.

How do freelancers save tax in India?

Freelancers can save tax in India by claiming deductions and exemptions available under the Income Tax Act. Some common deductions and exemptions that taxation for freelancers can claim include business expenses, such as rent, utilities, and office equipment, as well as investments in tax-saving instruments such as Public Provident Fund (PPF) and National Pension System (NPS).

How much tax do freelancers pay in India?

The taxation for freelancers in India pay depends on their taxable income. For the financial year 2022-23, freelancers are required to pay taxes at the following rates: Up to Rs. 2.5 lakhs: No tax Rs. 2.5 lakhs to Rs. 5 lakhs: 5% of the amount exceeding Rs. 2.5 lakh Rs. 5 lakhs to Rs. 7.5 lakhs: Rs. 12,500 plus 10% of the amount exceeding Rs. 5 lakhs Rs. 7.5 lakhs to Rs. 10 lakhs: Rs. 37,500 plus 15% of the amount exceeding Rs. 7.5 lakh Rs. 10 lakhs to Rs. 12.5 lakhs: Rs. 75,000 plus 20% of the amount exceeding Rs. 10 lakh Rs. 12.5 lakhs to Rs. 15 lakhs: Rs. 1.25 lakh plus 25% of the amount exceeding Rs. 12.5 lakh Above Rs. 15 lakhs: Rs. 1.87 lakhs plus 30% of the amount exceeding Rs. 15 lakh

Can salaried individuals who do freelancing work in their free time avail of the benefits under the Presumptive Taxation Scheme?

Yes, salaried individuals who engage in freelancing work on the side can avail of the benefits under the Presumptive Taxation Scheme. According to the scheme, eligible taxation for freelancers can opt for presumptive taxation and declare a certain percentage of their gross receipts as taxable income, which simplifies the tax calculation process. However, it is essential to meet the eligibility criteria and follow the rules laid down by the tax authorities.

How can I calculate aggregate turnover to register for GST?

To calculate the aggregate turnover for GST registration, add the value of all taxable supplies (both goods and services) made by you, including interstate and intrastate supplies, exempt supplies, exports, and any supplies made on behalf of other taxable persons. Exclude taxes levied under GST like CGST, SGST, IGST, and cess from the turnover calculation. If your aggregate turnover in a financial year exceeds the specified threshold limit (varies by country), you are required to register for GST.

Do freelancers need Form 16 while filing Income Tax Return?

No, taxation for freelancers do not typically receive Form 16 since it is a document provided by employers to their salaried employees, summarising their salary, deductions, and taxes withheld during the financial year. As a freelancer, you will receive payment directly from clients without tax deductions at source (TDS). Instead, you need to maintain your income and expense records and report your total income while filing your Income Tax Return.

Can taxation for freelancers claim ₹ 50,000 as a standard deduction as applicable for salaried individuals?

Yes, from the assessment year 2020-21, freelancers and professionals can claim a standard deduction of up to ₹ 50,000 from their gross income. This deduction is allowed against their professional income to cover expenses incurred in relation to their profession. However, it's important to ensure that you meet the conditions and eligibility criteria set by the tax authorities to claim this deduction.

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