- Are you a working as a freelancer in India?
- Are you writing blogs, doing search engine optimization (SEO) or data entry work and earning income by working from home as a freelancer?
If the answer is “yes”, then you are liable to pay income tax and service tax in India. However, this is not necessary if you are exempted to pay taxes under various acts that fall with Income tax and service tax sections.
With the rapid growth of internet in India, freelancing business is also growing. The number of freelancers, bloggers, and independent working professionals is rising. It is a known fact that freelancing has paved the way for great earning opportunities, but with more income earnings, there is also the need for taxation of your earnings in India. A person earning on his own as a freelancer is considered as a Sole Proprietor and needs to file Income tax returns, Pay Tax & Service tax return.
First of all, remember, as a freelance, you are not earning a fixed salary. What you are earning as freelancer is actually under “Profits or Gains of Business or Profession”. For filing tax returns, you need to use either ITR-4 or ITR-4S.
Another important fact to remember is that you don’t have to display the total amount you earned via freelancing as income. Your actual income is:
Total income – Annual expenses – Annual depreciation of the assets you used for freelancing like as computer, laptop, printer, modem etc.
Let us know elaborate this for your better understanding:
Income Calculation of a Freelancer
The sum of all your income that comes from your freelancer work for your clients from various projects is your total income earnings. Your bank statements, payment gateways, Paypal or any other medium through which you get your payment monthly or weekly basis represent the receipts of your income.
Now you need to calculate your expenses
As a freelancer, you are also incurring expenses in the form of expenditure on Internet and electricity charges, phone charges or expenses on the depreciated assets, rentals, repairs, travelling for business purpose and so on. All these necessary expenses should be deducted from your total freelancing income.
Tax Audit Requirement Under Section 44AB
If a freelancer is earning more than Rs. 25 lac in a financial year, he is liable for a tax audit. A professional CA should also provide his tax audit report. He should file tax audit report electronically via Form 3CD. Freelances subject to tax audit should also file Income Tax return.
Income Tax Return
If your gross total income from freelancing is more than Rs.2.5 lakh, then you need to file Income Tax return.
Service Tax on Freelancer Income
Service Tax is also applicable on the freelancer’s income. If the income earned is more than 9 lakhs in a year (for freelancing services provided within the country), then a service tax is levied on the freelancer. If freelancing services are provided outside India then it’s called Export of the Services.
The Final Total taxable income and tax payable
One can decrease their tax payment by making full use of deductions under Section 80. You can reduce your Income tax by allowing deductions such as Tax Saving Investments, Life Insurance premiums, medical insurances under section 80C to 80U etc. So you have
Net Taxable Income = Gross Taxable Income – Deductions