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PERSONAL FINANCE

TAX FILING/ INCOME TAX RETURN FOR DIFFERENT CATEGORIES OF FREELANCERS IN INDIA

WHAT IS GENERAL INCOME TAX RULES FOR FREELANCER?

As per the Income law in India, Any income you earn as a freelancer in India is counted under the head ‘Profits and Gains of Business or Profession’. The income tax slabs for freelancers are the same as that for salaried individuals. The higher your income, the more is the tax. The tax slab for freelancers is calculated as below. Income derived is your Total receipt less the expenses (next paragraph is about what expenses are)

Income tax slabs under new tax regime (Applicable from FY2020-21)

INCOMETAX
RS. 2.5 LACSNIL
RS. 2.5-5 LACS5%
RS. 5-7 LACS10%
RS. 7.5-10 LACS15%
RS. 10-12.5 LACS20%
RS. 12.5-15 LACS25%
RS. 15 LACS AND ABOVE30%

 WHAT ARE THE EXPENSES THAT FREELANCERS CAN CLAIM IN ORDER TO REDUCE TAX LIABILITY?

Certain expenses can be deducted from your gross taxable income to reduce your tax outgo. The Income Tax Law allows you to claim these expenses as you spend certain amount for the purpose of acquiring and delivering work in freelancing

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Only those expenses that are incurred in business of acquiring and delivering freelance assignment can be shown as deductions not those which are of personal in nature.

Example of expenses which you can claim as deductions in calculating profit before taxes:

  • Travelling & conveyance expenses , Lunch & business promotion expenses
  • Expenses related to office rent, office supplies, stationery, phone, Internet.
  • Cost of depreciation of assets such as a laptop, camera,  and other devices you are using
  • Rent of the space that is used to carry out for the freelance assignment
  • Payment to freelance consultants for the assignment

WHAT IS PRESUMPTIVE TAXATION RULE WHICH HELPS FREELANCER PLAN AND SAVE TAXES?

This is applicable if your Freelancing receipts during the year is upto Rs. 50 Lacs. This method does not require you to maintain bookkeeping. Under this method, it is presumed under this provision  that half of your gross receipts is your income therefore by keeping the presumed figure at 50%, half of the total receipts that you earned during one financial year is treated as income from business and profession and taxes are calculated accordingly as per the slab given in the first paragraph of this blog. Only the following services are eligible for presumptive taxation wherein you can presume 50% of total receipts as your income taxable during one financial year:

  • Interior Decorators
  • Technical consulting
  • Accounting
  • Engineering
  • Architecture
  • Legal
  • Medical
  • Other professionals: Movie artist includes producer, director actor, music director, cameraman, dance director, singer, lyricist, story writer, screenplay/dialogue writer and costume designer
  • Any other notified professionals by income tax authority

WHAT IS TDS DEDUCTION FOR FREELANCERS?

Clients deduct TDS from the payment made to the freelancers. Freelancers can claim such deducted TDS when filing ITR (Income Tax Returns). Freelancers can get the information about TDS deducted from Form 26AS or take help of ca near you or any tax expert near you. TDS is deducted when the payment that is being made to you exceed the certain threshold limit. Based on the nature of service category- different threshold has been prescribed

WHEN CAN I NOT FILE ITR?

If your total income before tax during the year is less than 5 lakh then you may not. However it is always highly recommended to file your itr even if income is below limit because you might need it for several purpose like in banking, buying property, in online businesses etc. If you do not file within due date, later on there is no window open to file older itr. Therefore always a good option to file Income tax return, after all it is one time activity in a year so there is no hassle.

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WHAT ARE OTHER TAX SAVING OPTIONS FOR FREELANCERS?

INVESTMENT IN EQUITY LINKED TAX SAVING SCHEMES, taking benefit of EMI’s you pay on house loan, Insurance (life, medical) for self or spouse or parents etc are some top most option. It is always advisable to talk to expert if you want some specific information related to how tax saving investment can be chosen or decided for yourself.

Thanks for reading. You may write to us at info@taxvic.com if you wish to receive a call back from expert or to provide your feedback/ask any questions!

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PERSONAL FINANCE

TAXES IN INDIA FOR FREELANCERS: GUIDE TO PLAN AND SAVE TAXES STEP BY STEP

In India and all over the world number of freelancers is increasing every second. Currently in India there are 16 million approx. freelancers in several fields. Technology, opportunities, innovations in working methods, remote location working methods have contributed positively in freelancing work.  Like any other income earners Freelancers are also liable to comply with the income tax laws. Lets us understand the most important aspects here, we will cover from basic things and step by step help understand the taxation system, how we plan and save taxes.

WHO IS FREELANCER?

A freelancer is a self-employed person who works for clients on a project/assignment-basis or on a retainer for providing a specific pre-decided set of services. Mostly the fields in India where freelancing is popular include writing, accounting, photography, web development, architecture, digital marketing among others. 

WHAT IS INCOME IN FREELANCING?

Any money you receive as a freelancer constitutes income. Whether the income is from India or from outside India, it does not matter, except for some difference in GST rules (we will explain this in later part). Your bank statement is relevant document which is used to check your income from freelancing during the year.

Freelancers can be anyone from the following: Blogger, Vlogger, Digital Marketer, Social Media Manager, Consultant from any field, Web Developer, Designer, Photographer, Teacher, Makeup artist, etc

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IS GST APPLICABLE TO FREELANCERS?

Freelancers whose revenue is 20 lac or more during one Financial year, needs to register for GST mandatorily. The freelancers whose revenue is less than 20 lac and those who provide services only within their state are not required to register for GST. The percentage of GST for a freelancer depends on the kind of service that the freelancer provides. If there is no rate specified then the freelancer is liable for 18% GST. In certain cases freelancers can take GST on a voluntarily basis. Remember that once you register for GST, Filing GST returns is mandatory.

WHAT IS GENERAL INCOME TAX RULES FOR FREELANCER?

As per the Income Tax Act, whatever income you earn as a freelancer in India is counted under the head ‘Profits and Gains of Business or Profession’. The income tax slabs for freelancers are the same as that for salaried individuals. The higher your income, the more the tax. The same is calculated as below. Income derived is your Total receipt less the expenses (next point is about what expenses are)

Income tax slabs under new tax regime (Applicable from FY2020-21)

INCOMETAX
RS. 2.5 LACSNIL
RS. 2.5-5 LACS5%
RS. 5-7 LACS10%
RS. 7.5-10 LACS15%
RS. 10-12.5 LACS20%
RS. 12.5-15 LACS25%
RS. 15 LACS AND ABOVE30%

WHAT ARE THE EXPENSES THAT FREELANCERS CAN CLAIM IN ORDER TO REDUCE TAX LIABILITY?

Certain expenses can be deducted from your gross taxable income to reduce your tax outgo. The Income Tax Law allows you to claim these expenses as you incur these for the purpose of acquiring and delivering work in freelancing

Only those expenses that are incurred in business of acquiring and delivering freelance assignment can be shown as deductions. 

Example:

  • Travel expenses , Lunch & hospitality expenses
  • Expenses of office supplies, stationery, phone, Internet, among others
  • Cost of depreciation of assets such as a laptop, camera,  and other devices
  • Rent on property that is used to carry out for the freelance assignment

Payment to freelance consultants for the assignment

WHAT IS PRESUMPTIVE TAXATION RULE WHICH HELPS FREELANCER PLAN AND SAVE TAXES?

This is applicable if your Freelancing receipts during the year is upto Rs. 50 Lacs. This method relieves you of bookkeeping. Under this method, it is presumed that half of your gross receipts is your income therefore by keeping the presumed figure at 50%. This 50% of receipts is treated as income from business and profession and taxes are calculated accordingly. Only the following services are eligible for presumptive taxation:

  • Interior Decorators
  • Technical consulting
  • Accounting
  • Engineering
  • Architecture
  • Legal
  • Medical
  • Other professionals: Movie artist includes producer, director actor, music director, cameraman, dance director, singer, lyricist, story writer, screenplay/dialogue writer and costume designer
  • Any other notified professionals by income tax authority

WHAT ABOUT TDS DEDUCTION FOR FREELANCERS?

 Clients deduct TDS from the payment made to the freelancers. Freelancers can claim such deducted              TDS when filing ITR (Income Tax Returns). Freelancers can get the information about TDS deducted from Form 26AS or take help of ca near you or any tax expert near you.

IS THERE A REQUIREMENT OF SEPARATE AUDIT FOR FREELANCERS?

If Gross receipts from your freelancing business is more than Rs. 50 Lacs in a year- you are supposed to get the books audited from a chartered Accountant. This is called income tax audit.

IS FOREIGN INCOME TAXABLE FOR FREELACERS?

Yes. If you’re a resident Indian, the income you’ve earned from outside India  will  be included to your total income.

Just like TDS in India, the country laws of the client you work for may require your client to deduct tds when they pay you. This could mean that your income is taxed at source and also in the country of residence. To prevent this, India has entered into Double Tax Avoidance Agreements (DTAAs) with several countries. The rate differs for each country, you can check the relevant DTAA of the country where your income was earned.

You can claim tax relief either through exemption or tax credit. The mandatory documentation for this is a tax residency certificate. Under the tax credit method, since you have been taxed in both countries, you would get a foreign tax credit for taxes paid in the source country. Your professional can assist you to file and claim refund of taxes deducted in another country.

WHAT ARE OTHER THINGS TO TAKE CARE OF IN ORDER TO COMPLY WITH THE TAX LAW IN INDIA?

  1. In cases where the total tax payable amount is Rs 10,000 or more, the freelancer is expected to pay taxes every quarter. This tax paid every quarter is an advance tax.

Due date for paying advance tax?

  • On or before 15th June, 15% or more
  • On or before 15th September, 45% or more depending on the amount of tax paid in the last instalment
  • On or before 15th December, 75% or more depending on the amount of tax paid in the last instalment
  • On or before 15th March, the entire 100%
  1. Filing of income tax returns within due date
  2. Claiming of TDS deducted at the time of filing Income tax return
  3. Register for GST if your receipts has reached threshold limit
  4. Go for income tax Audit if your receipts has reached threshold limit
  5. If your business grows rapidly- talk to consultant about restructuring your business such as should you now go for entity incorporation etc.

Got any questions? Or need  tax advice or a call from expert? Drop an email to info@taxvic.com

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PERSONAL FINANCE

EVERYTHING YOU NEED TO KNOW ABOUT TAX SAVING FOR SALARY INCOME IN INDIA

It is quite painful when you have to pay huge sum of taxes for salary income. This write up is meant to help you understand all the methods available to save taxes on income from salary. It is a smart decision to save taxes on salary income by utilizing the methods Government has given to salaried tax payer.

Most of the salaried tax payer knows only about 80C however there are other ways to save taxes. Let’s discuss all these tax saving for salary income point by point. If you do not want to go through hassle of reading and having to analyses and want to talk about tax saving options under salary.

Simply contact us and receive a call within a day from CA for tax planning or tax expert. Now lets discuss the points of most important tax saving tips for salaried tax payers in India:

SECTION 80 CCD (1B) NATIONAL PENSION SCHEME (NPS): You can save additional tax by investing in NPS for 50000. As you know under 80C, the limit is 1.5 lacs, /so this section helps you increase the limit upto 2 lacs under 80C altogether. All you have to do is invest under NPS. If you are under 30% tax bracket, this additional deduction helps you save upto 15000 of income tax.

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SECTION 80D HEALTH INSURANCE PREMIUM: This is one of the most important insurance everyone should have. The cost of medical expenses can create a big headache and stress to you and family so taking health insurance is not just good for tax saving but it is extremely important which can save you a lot of stress. The Government in order to encourage provides tax saving benefit not only on your health insurance but family members as well, here is the limits:

  • Upto 25000 tax deduction: For you including your spouse and your children. If any of you or your family members is older than 60 years the limit you can claim is 50000
  • Upto another 25000: For your parents. If parents are older than 60 years limit you can claim is 50000

SECTION 80 DD: If you are taking care of disabled dependent , you can claim tax deductions for same. This is to help disabled dependent in your family. Who are dependent in family? It can be your spouse, children, your parents or your siblings.

List of disabilities covered by this section: Cerebral Palsy, Autism, Mental illness, Blindness, Low vision, Loco- Motor disability, hearing impairment, Mental retardation,

Tax deduction can be claimed on medical treatment expenses, their nursing, training and rehabilitation and on premium paid on any insurance policy taken for them

What is the tax deduction limit?

If 40% disabled: limit is 75000

If 80% disabled: limit ids 125000

SECTION 80E: Tax deduction on education Loan: Deduction is available on interest paid from the year on which repayment starts till the time loan period gets over or till 8th year whichever is earlier.

SECTION 80TTA: Tax Dedduction on interest earned from your saving bank or post office accounts This section is not available for interest earned on FD, RD or your term deposits. Interst upto 10000 is not taxable under this section. So you get deduction of 10000 under this section for interest earned by you during the year. All bank accounts are consolidated, not to be looked at each bank separately. Rest of your interest is chargeable to tax under head income from other sources. For senior citizen the limit is 50000 deduction of same comes under section 80TTB

SECTION 80 C:  This is the most popular section and eligible investments you can made under this section are Investments in Provident Funds such as EPF, PPF, etc., payment made towards life insurance premiums, Equity Linked Saving Schemes, payment made towards the principal sum of a home loan.

If you want to understand these points of tax saving on salary income or want to plan tax saving on salary income from a professional or CA near you, just email us at info@taxvic.com and you shall be contacted with all the help. Thankyou for reading!