With the advent of technology, more and more people are getting inclined to freelancing. However, there still remains an ambiguity surrounding the tax rules applicable to freelancers and their incomes.
An income earned from freelancing is treated as ‘profits and gains from business or profession’ for the purpose of taxation. While some might find this strange, this is because the income is seen as earnings from self-employment.
Here are the tax rules that will apply to freelancers' income in India:
Filing ITR
Just like any other individual, a freelancer has to file an income tax return each year. However, they can only opt for ITR-3 or ITR-4. Another thing to note here is that if a salaried individual has earned an income from freelancing, outside of their job, they will have to fill an ITR form eligible to those with income from business or profession.
Taxpayers with freelance income also have the option to seek an exemption from their income such expenses which are incurred to do freelance work.
The deductible expenses include rent of the property taken to do the work and any repair costs incurred on such property, any repairs carried out on electronic equipment such as laptop or personal computer, office expenses such as purchasing supplies, internet bills and phone bills, expenses related to travel undertaken for the work, conveyance bills of commute to office/co-working space and depreciation value of equipment such as laptop used in this regard.
However, freelancers cannot avail themselves of the Rs 50,000 standard deduction while filing ITR. Salaried taxpayers who also did some freelancing in a financial year can seek standard deduction.
Tax calculation for freelancers
Most employers deduct TDS on payments made to freelancers. Remember to include the TDS while computing tax liability.
Freelance income earners are required to make an advance tax payment every quarter within the due date, if the net taxable amount is above Rs 10,000.
If total tax on calculation comes more than Rs 10,000, freelancers will have to pay interest on it.
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