Freelancers in India are legally considered self-employed professionals, which means they are responsible for their own tax compliance. Here’s a comprehensive guide to managing taxes as a freelancer in India.
1. Income Tax Applicability Freelance income is taxed under the “Profits and Gains of Business or Profession” category. You are required to file an ITR (usually ITR-3 or ITR-4) if your total income exceeds ₹2.5 lakhs per year.
2. Presumptive Taxation Scheme (Section 44ADA) If your income is less than ₹50 lakhs annually, you can opt for Section 44ADA, where 50% of your gross receipts are considered profit and taxed accordingly. It simplifies compliance and avoids maintaining detailed books.
3. GST Registration GST registration is mandatory if your total turnover exceeds ₹20 lakhs (₹10 lakhs for some special category states). Even if not mandatory, some clients may require a GST invoice.
4. Advance Tax Payments Freelancers must pay advance tax in four installments if their tax liability exceeds ₹10,000 in a financial year. Missing deadlines attracts interest and penalties.
5. Business Deductions You can reduce taxable income by claiming legitimate business expenses like software subscriptions, internet bills, rent, travel costs, and office supplies. Maintain proper receipts and invoices.
6. TDS and Form 26AS Clients may deduct TDS (Tax Deducted at Source) from payments. Track these in your Form 26AS and ensure they match your ITR. You can claim credit for deducted TDS when filing your return.
7. Hiring a CA or Using Software While it’s possible to file taxes on your own, a Chartered Accountant can help ensure compliance, especially if you deal with international clients or GST.
8. International Payments and Foreign Exchange Income from foreign clients is taxable in India. You must report it in your ITR and comply with FEMA regulations. Tools like PayPal, Wise, or wire transfers are commonly used.