Income of Freelancers: Taxation under Income Tax and GST

A 9-to-5 job is not something that appeals to everyone. Some people like a bit of flexibility to pursue other interests, have more time for their loved ones, or simply avoid a boring routine. That is why people freelance in the comfort of their couch at home, a cool café, or a co-working space. As per the income tax laws, freelancers, too, are liable to pay taxes for the income they earn, just like other salaried or business taxpayers. Here is, in detail, about Income of Freelancers: Taxation Provisions. Read Now!

What is Freelancing Income ?

Freelancing income comes into the picture when you get hired to work on specific assignments for a particular term and get paid for the work upon completion and submission. You will not get PF mandated by the Company Act.

You are not required to go to the office – in fact, and you can complete the work at leisure (by the pre-agreed deadline) from any place convenient to you.

Freelancing work is one that can be as easy as it is possible. It’s like owning your own business. You are your own boss, your own employer.

Freelancers Income & Its Taxability 2 — **Sources of Income of Freelancers in India**

Income Tax Applicability

Any income you earn by displaying your intellectual or manual skills is the income from a profession according to income tax laws in India. Such income will be taxable as “Profits and Gains from Business or Profession”.

Freelancers can deduct expenses they incurred to do the job from their income. It could be anything from office furniture to cab fares to visit clients. These expenses must be directly related to the job you are doing.

Conditions to claim expenses as deduction

Following conditions must be fulfilled to claim any expense as deduction:

The expense is for the freelancing work being carried on.
It has been spent fully and exclusively for the purpose of your work.
Must incurred during the tax year.
It is not a capital expenditure or a personal expenditure of the freelancer.
It is not incurred for any purpose which is an offence or is prohibited by law.

Examples of expenses that can be claimed as deduction are:

Rent of Property, Repairs undertaken, Depreciation, Office Expenses, Travel Expenses, Domain Registration and Apps Purchased.

Tax Payable

Presumptive Basis

Income of freelancer can be taxable on presumptive basis u/s 44ADA provided their Gross Receipts should be below Rs. 50 lakhs. In this case:

Taxable Income = 50% of Gross Receipts

If one is covered under this section then he is not required to maintain Books of Accounts and get them audited by CA.

If freelancer’s gross receipts are more than Rs. 50 lacs per annum or he thinks that his Net Profit is less than half of his Gross Receipts, then he can maintain Books of Accounts.

Taxable Income = Gross Receipts – Expenses incurred for Business

Advance Tax Basis

If the total tax liability during a financial year exceeds Rs.10,000, the taxpayer is required to pay taxes every quarter. This is called advance tax.

The due date for Advance Tax:

On or before 15^th June	Not less than 15% of advance tax
On or before 15th September	Not less than 45% of advance tax as reduced by the tax paid in the last instalment.
15th December or before	Not less than 75% of advance tax as reduced by the tax paid till the last instalments.
On or before 15th March	The whole amount (100%) of advance tax as reduced by the tax paid till the last instalments.

GST Applicability

Earlier VAT & Service Tax applied on freelancers. Now, these taxes have been replaced by GST.

If you sell goods

GST has replaced the earlier VAT applicable. The rate of GST will depend on the items you are selling. For example, if you make and sell cakes to bakeries then you must charge 18% GST. Currently, this is the applicable GST rate on cakes.

If you provide service

18% GST applies to most services. So, for your freelancing services, you must charge 18% GST from clients.

Should Freelancers file TDS Return?

Freelancers may get their payments after tax is deducted at source. Similarly, freelancers are required to deduct tax at source before making a payment.