How are freelancers taxed in India?

Earlier, people had two options to define their employment. One was salaried, and the other was self-employed. But now, the third category has evolved, which is known as freelancers. These are self-employed individuals who work on a range of projects for multiple clients from the convenience of their own home (or any other place). Website designers, consultants, software developers, content writers, etc., are among the freelancers. Like others, freelancers must pay taxes to the government on their earnings under the Income Tax Act. Usually, they are confused about their tax calculation and opt for professional help. If you are looking for the best income tax return filing services in Delhi NCR, then contact Inside Tax. They can help in the same. Get more information on tax calculations for freelancers in the upcoming section of this blog.

Treatment of income

Any income obtained by demonstrating your intellectual or manual ability is considered earnings, according to the Income Tax Act. This income would be subject to taxation under the heading “Profits and Gains from Business or Profession.” The total of all revenues earned during the course of your profession would be your gross earnings.

Allowed deductions (expenses)

Expenses that are allowed for deductions include all the costs incurred while completing the project, including workplace furniture, fare to clients’ homes, devices (laptops, phones), etc.

Conditions for deducting expenses from freelancing income

• The cost is for the work that is being done as a freelancer.
• It was spent completely and solely for the purpose of your work.
• It happens during the tax year.
• It is neither capital nor a personal expense for the freelancer.
• It is not incurred for the aim of committing a crime or violating a law.

Expenses that can be deducted from your income

• The rent

The rent paid might be claimed under deductions if you rent a property to carry out your employment.

• Repairs are being carried out.

These repair costs might be deducted if you agree to pay for repairs to the rental property. Repairs to your laptop, printer or other equipment are also eligible for a deduction.

• Depreciation

Depreciation on assets is also calculated under expenses.

• Expenses for the office

Expenditures incurred in the course of your work, like monthly phone bills, internet bills, and transportation expenses, can all be deducted.

• Expenses for travel

Travel expenses to meet with clients.

• Hospitality

It can be claimed when you take your clients out for a meal to discuss business.

Taxable income is calculated as follows:

Presumptive Tax Calculation: If a freelancer’s gross receipts are less than Rs. 50 lakhs, their income can be assessed on a presumptive basis u/s 44ADA. In this instance:

50% of gross receipts = taxable income

If you are covered by this section, you are not required to keep books of accounts or have them audited by a CPA.

Profit & Loss Net Taxable Income

If the gross receipts sums to an amount more than 50L per annum, then the freelancer needs to maintain the books of accounts and tax calculation will be:

Gross Receipts minus Business Expenses = Taxable Income

Deductions for TDS for freelancers

The majority of consumers withhold TDS from freelancers’ fees. When submitting an ITR, freelancers can claim the deducted TDS (Income Tax Return). Form 26AS can provide you with information about TDS deducted. Form 26AS, which shows the total amount of TDS deducted for the year, is available on the Income Tax Portal.

If you pay your taxes in advance, you’ll save a lot of money.

Advance Taxes

When the total amount of tax due is Rs 10,000 or more, the freelancer is required to pay every three months. This is an advance tax that is paid every quarter.

Conclusion

Freelancers also need to pay tax, and the calculation is done like a self-employed person. But there are some things that need to be considered. Freelancers who are looking for the best income tax return filing services in Delhi NCR can consider taking help from our team.