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FILING INCOME TAX FOR A FREELANCER

There is no age limit for freelancing. Plenty of job opportunities, and favourable tax rules, ensure that freelancing is now more productive than ever before, for those who want to make a living from it or those who work part-time. The term "freelancing" refers to self-employed and consultants. Many professionals and consultants qualify as freelancers.

Photographers, medical/legal/architectural consultants, software developers, tutors and fashion designers, among others, are known as freelancers when they are not working for a given salary.

Freelancers work mainly on a project or assignment basis. Income tax is very lucrative for consultants in India and offers a lot of savings.

With the evolution and growth of the Internet and the web, web freelancing has also become an attractive source of income for those who want to earn part-time (or full-time) income. The income of freelancers and bloggers comes from sources on the web, including:

Ø  Affiliate sales

Ø  Advertising (in other ways including direct ad sales and Google AdSense).

Ø  Services related to web content writing, SEO, blog consulting, web designing, web development and more.

So how do freelancers pay their income tax and how do they file an income tax returns (ITR) in India? The following guidelines will help freelancers to file and submit their taxes easily and securely.

KNOW YOUR TOTAL INCOME

Freelancer income is categorized under the heading "Business and Professionals". The first step in filing an income tax return is to calculate your total income for the year. Most of the time the payment to the freelancer is done online. Nowadays, it is easy for self-styled professionals to calculate his or her total income.

For a given financial year, ie from 1st April of the year to 31st March of the following year, the total income is calculated. Loans that have been taken (for any reason) are not counted as income.

SUBTRACT COSTS

All expenses incurred by the freelancer for securing the business during the financial year are deducted from the total annual income. Tax rates apply only to profits. Business costs can be in the form of internet charges, telephone charges and more. For example, if you are a software developer and work as a freelancer, you can deduct the cost of purchasing software and testing it while building an Android application.

For certain expenses related to personal and business purposes (such as internet and telephone), look at monthly usage and payment trends and assign reasonable percentages for business (or deduction) purposes.

DEPRECIATION DEDUCTION

You must deduct all expenses related to depreciation from net annual turnover or gross income. Every year equipment (including electrical goods) gets worn out and its value decreases.

Depreciation is called decreased value. Photographers, for example, can calculate the depreciation of cameras and printing equipment. Web freelancers can report depreciation on the laptops, computers and other devices and gadgets they use.

Depreciation is an economically viable way to spread the value of a given asset over a period of time, rather than show the cost in advance, as these gadgets are used for a longer period of time.

If you work in a rented space, you can ask for a rent discount. The fees you pay to acquire or hold a business association membership and business membership are also tax-free.

Therefore, all expenses incurred by freelancers for commercial purposes are tax-free. Expenses should be legal and not for personal reasons.

INCLUDE INCOME FROM ALL OTHER SOURCES

In addition to the income the freelancer receives from freelancing, he or she should also include other income in the ITR. Some of these incomes include:

Ø  Profit from the property, in the form of sale profit or rent return

Ø  Income accrued on a savings account, or term deposit, in the form of interest

Ø  Earnings from trading of shares, equity, debentures etc.

Ø  All other types of income

Ø  Any income from the employer, in the extra hours you work throughout the year

Ø  No other income is mentioned here

DEDUCTIONS

Like salaried individuals and professionals, freelancers can claim huge deductions/tax deductions when filing their income tax returns.

Deduction / tax relief under section 80

TDS DEDUCTION

All income that a freelancer receives after deducting TDS (Tax Deducted at Source) is eligible for a rebate. When clients pay a freelancer, they usually deduct TDS. By filling out the ITR form, you can claim TDS for the deduction of a freelancer and save a good amount.

The freelancer may use Form 26AS for this purpose. View all TDS taxes deducted online at TRACES. This form is attached to the PAN number and helps you to know all the TDS deducted. When filing an ITR, be sure to include all deductions.

ADVANCE TAX

When the total tax liability of a freelancer is Rs. 10,000, he or she will also have to pay advance tax. Advance taxation is the payment of tax over a period of time, instead of paying it once in a given year. If you fail to pay this tax, interest will be charged on your final tax account under sections 234B and 234C of the Income-tax Act.

PRESUMPTIVE TAXATION

Freelancers can also use the estimated tax system and get rid of the hassle of account bookkeeping when they earn less than Rs 50 lakh in a given financial year.

The scheme was previously only available to professionals but has now expanded to include freelancing professionals as well. Businesses are taxed at% 8% of gross annual income. For example, if a trader makes a turnover of Rs.100, he or she can show a profit of Rs.8. Income is charged under the "Business and Business" head under "Profit and Profit".

The new section 44ADA, incorporated in 44ADA of the Income-tax Act, brings professionals under the ambit of tax relief. The estimated rate for a freelancer is 50%. Therefore, on a turnover of Rs 100, a profit of Rs 50 will be assumed.

WHAT ARE INCOME TAX TAXATION SLABS

The same tax applies to slab freelancing individuals. Income up to 2.5 lakhs is not taxed, income between 2.5 lakhs and 5 lakhs is taxed at  10%, 5 to 10 lakhs @ 20% and more than 10 lakhs at 30%. Freelance calculations only show values ​​according to these tax rates.

FORMS TO BE USED FOR FILLING ITR

A freelancer can use the ITR 4 form when filing a tax return. If your income is more than Rs 1 crore, your accounts should be audited as per ITR Act (Section 44AB). In this case, you must file an ITR before October 31.

When your turnover is less than Rs 1 crore, no audit is required and the last date for submission of ITR is 31st July.

Under section 44ADA of the Income-tax Act, and section 44AE, if the freelancer chooses the Presumptive method of taxation, ITR Form 4 should be used.

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Contact

Santosh ICA & MBA

Director @ Alliance Tax Experts

9769201316

santoshpatil@alltaxfin.com

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