Income Tax Filing for Freelancers: Freelancers are the persons who take assignments for a specific period and they get paid for the work done. Freelancers are the self-employed person. They are not the employee of any entity and so they do not get the perks and all benefits that an employee enjoys. However, just like everyone, if they are earning they are required to pay Income tax on income received from freelance work.
What is the category of Freelancing income in income tax?
Freelancing income is taxable under Profits and Gains from Business and Profession. Gross Income shall be all the receipts received from the service provided as a freelancer. Generally, all the income is received through online modes and so it can be considered the relevant document for considering the gross income received.
If this income is considered as Profits and Gains from Business and Profession, then all the deductions allowed as it is allowed to other assesse? Well, freelancers shall be considered as other assesse only and deduction shall be allowed in the same manner, if below conditions are fulfilled-
- The expense is wholly for Business purpose.
- It shall not be personal or capital expenditure.
- The expense shall not be an offense or prohibited by law.
Thus, expense that would be allowed shall include depreciation of any asset, rent expense, repairs of any asset, travelling for business purpose, office and admin expense, etc. However such expenses shall be allowed proportionately if assets like mobile, laptops, etc. are used for both personal and business purpose.
Read Also: Income Tax on Cashbacks, Rewards, e-wallet and Online payment
Is Presumptive taxation applicable to Freelancers?
Freelancers would fall under section 44ADA of Income Tax Act. In this, you will pay tax on half of your gross total income subject to condition that the annual gross income shall be upto Rs. 50 lakh. Presumptive scheme can be considered to be the best tax paying option as any service providing entity or individual generally do not have 50% expenses.
How freelancers have to maintain Books of Accounts?
There are 2 ways of maintaining Books of Accounts-
- Cash basis i.e. when received
- Accrual basis i.e. when due
The method once selected has to be used for all the clients. They have to maintain books of accounts as specified in rule 6F of Income tax act such as Journal, Ledger, Cash book, original and carbon copies of bills issued, Payment vouchers, etc. Read More: Books of Accounts -Section 44AA of Income Tax Act, 1961
In case of Presumptive taxation (section 44ADA), books of accounts have to be prepared if taxable income is not shown at minimum 50% of gross income.
Read More : Difference between Section 44AD, 44ADA and 44AE of Income Tax Act
Is Income Tax Audit applicable to Freelancers?
If the gross income of freelancer exceeds Rs. 50 lakh then audit has to be done. However, if gross income is less than the basic exemption limit then no audit is required to be done. In case, presumptive taxation has been opted then audit shall be applicable if taxable income is not shown at 50% of gross income. The due date of Income tax audit for FY 2019-2020 has been extended to 31st October, 2020.
Read More: FAQs on Income Tax Audit under section 44AB of Income Tax Act, 1961
Advance tax Payment
Advance tax has to be paid if liability of Income tax is expected to be Rs. 10000 or more for any Financial Year. It shall be deposited in the manner described below.
| Quarter | Due date | Amount |
| April-June | Upto 15th June | Upto 15% of Advance tax liability |
| July-September | Upto 15th September | Upto 45% of Advance tax liability |
| October-December | Upto 15th December | Upto 75% of Advance tax liability |
| January-March | Upto 15th March | Upto 100% of Advance tax liability |
Exception : Where an assessee has declared his PGBP income in accordance with the provisions of presumptive taxation scheme as given u/s 44AD or 44ADA, such assessee is required to pay the entire tax as advance tax in one installment on or before 15th March of the relevant Previous Year. Any tax paid on or before 31st March will be treated as advance tax.
In case of failure in payment of advance tax, interest shall be levied under section 234A/234B/ 234C.
Read More: Advance Tax liability : Calculation, Due dates, Interest
What are the Income Tax Rate applicable to the Freelancers?
Income Tax Rate applicable to the freelancers are the normal slab rate. For More check Income Tax Rate For AY- 2020-2021/ FY- 2019-2020
How can the freelancers save Income Tax?
There are various deductions provided by Act to save Income tax for everyone. Some of them are-
- Mediclaim Deduction Tax benefit: Section 80D of Income Tax Act, 1961
- 5 Home Loan tax benefits u/s 24, 80C, 80EE, 80EEA of Income Tax Act
- NPS Tier II Tax Saver Scheme 2020 – Benefits
- Pension : Income from Pension and Family pension in India
- Interest Income – Saving Account, PPF, Fixed Deposits, bonds, R/D
Income Tax Return (ITR) Forms for Freelancer
Freelancer can use ITR-4 while filling return of Income by showing 50% of gross receipts as their profit. In case, Tax audit is applicable, ITR-3 is required to be filed. The due date of Tax audit is 30th September which has been extended to 30th October, 2020 for FY 2019-2020. Whereas in case audit is not applicable then due date shall be 31st July which has also been extended to 30th November, 2020 for FY 2019-2020.
Read More:
- ITR-3 : Who can file itr 3 | How to file ITR 3?
- ITR 4 Sugam – Who can file | Who cannot file ITR 4 | How to file ITR 4?
For any questions, you may reach us at Discussion Forum
The author of the above article is CA Rahul Gaur.
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