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.
Income tax slabs under new tax regime (Applicable from FY2020-21)
| INCOME | TAX |
| RS. 2.5 LACS | NIL |
| RS. 2.5-5 LACS | 5% |
| RS. 5-7 LACS | 10% |
| RS. 7.5-10 LACS | 15% |
| RS. 10-12.5 LACS | 20% |
| RS. 12.5-15 LACS | 25% |
| RS. 15 LACS AND ABOVE | 30% |
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.
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.
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