Income Tax Filing For the Freelancers

  • Author :
  • TATA AIG Team
  • Published on :
  • 02/01/2024

Freelancing in India has grown in leaps and bounds post-pandemic. And if you have also started your journey as a freelancer, welcome to the hustle!

While the freedom to be your own boss is fantastic, the not-so-glamorous part involves tackling freelance income tax filing. Don't sweat it – we are here to simplify the process.

Here, we will break down the basics of filing income taxes for freelancers without drowning you in jargon. Whether you are a seasoned pro or just starting your freelancing journey, understanding Income Tax Returns for freelancers is a must.

In this guide, you will learn about deductions, understand the mysteries of self-employment taxes, and guide you through the essentials to make tax season a breeze.

So, put your feet up, and let's tackle the nitty-gritty of income tax filing for freelancers together.

Freelance Earnings in India

Freelance income in India is when you undertake specific assignments for a defined duration and receive compensation upon successful completion.

Unlike traditional employment, freelancers are not considered company employees and are not entitled to benefits such as Provident Fund (PF). The flexibility of freelancing allows you to work remotely without the need to visit an office; you can fulfil your tasks at your own pace, adhering to the agreed-upon deadlines.

Numerous professionals, including blog consultants, software developers, content writers, web designers, tutors, and fashion designers, fall under the freelancing umbrella.

However, navigating income tax filing for freelancers can pose a slight challenge due to earnings stemming from diverse sources.

ITR for Freelancers in India - An Overview

Freelancers are obligated to fulfil their income tax responsibilities according to the prevailing slab rates, making use of eligible deductions under the business and profession category.

Alternatively, freelancers can file their Income Tax Returns (ITR) using the presumptive taxation scheme outlined in section 44ADA. This scheme permits freelancers to assess and pay taxes based on just half of their gross annual income, provided it remains below the ₹50 lakh threshold.

Below are the income tax returns for freelancers applicable under the age of 60:

Income Tax Slab Old Tax Regime New Tax Regime (Till 31st March 2023) New Tax Regime (From 1st April 2023)
Up to ₹2,50,000 - - -
₹2,50,000 - ₹3,00,000 0.05 0.05 -
₹3,00,000 - ₹5,00,000 0.05 0.05 0.05
₹5,00,000 - ₹6,00,000 0.2 0.1 0.05
₹6,00,000 - ₹7,50,000 0.2 0.1 0.1
₹7,50,000 - ₹9,00,000 0.2 0.15 0.1
₹9,00,000 - ₹10,00,000 0.2 0.15 0.15
₹10,00,000 - ₹12,00,000 0.3 0.2 0.15
₹12,00,000 - ₹12,50,000 0.3 0.2 0.2
₹12,50,000 - ₹15,00,000 0.3 0.25 0.2
Exceeding ₹15,00,000 0.3 0.3 0.3

Freelancers have the flexibility to choose between different tax regimes, each offering specific deductions. One option available to freelancers is the Presumptive Taxation Scheme outlined in Section 44ADA of the Income Tax Act, 1961.

Under this scheme, freelancers can declare and pay taxes on just half of their gross annual income, provided their total income for the year remains below ₹50 lakhs.

For those whose gross annual income exceeds ₹1 crore, a mandatory tax audit for business income is required.

When making payments to professionals exceeding ₹30,000 in aggregate during the financial year, freelancers are subject to a 10% Tax Deducted at Source (TDS). Utilising the Presumptive Taxation Scheme, freelancers can file their income tax returns using the ITR-4 form.

For freelancers not opting for the Presumptive Taxation Scheme, the ITR-3 form is suitable and designed for reporting income from businesses or professions.

Filing ITR for Self-Employed/Freelancers - Steps Mentioned

The process of filing Income Tax Returns (ITR) for freelancers in India differs from that of salaried individuals. Freelancers engaged in various professions, including legal, medical, architectural, accounting, engineering, technical consultancy, film, and interior decoration, can file ITR.

Additionally, freelancers in non-specified areas, such as Chartered Accountants, doctors, and lawyers, are also eligible to file income tax returns.

Here's a step-by-step guide on how freelancers can navigate the ITR filing process:

Step 1: Calculate the gross income from April 1st to March 31st of the fiscal year, excluding non-income items like loans.

Step 2: Determine business-related expenses incurred during freelancing to claim eligible tax deductions.

Step 3: Choose the appropriate ITR form and provide essential information:

ITR-3: For individuals earning business profits, including income from house property, capital gains, salary/pension, etc.

ITR-4: Those opting for presumptive income schemes under Sections 44AD, 44ADA, and 44AE. If gross receipts from the profession are below ₹50 Lakhs, and the individual belongs to the profession specified in Section 44ADA, ITR-4 Form is applicable.

Individuals can download the forms from the official Income Tax Department portal, fill them offline, and upload the XML file on the portal. Alternatively, they can fill out the forms directly on the portal and submit them after digital verification.

Step 4: Provide necessary details, including taxable income, deductions, expenditures, and advance tax payments.

If the gross receipt from the profession exceeds ₹50,00,000, individuals must get their accounts audited by a Chartered Accountant under Section 44AB. In case of an audit, the assessee needs to file the income tax return before October 31st.

If the gross receipt does not exceed ₹50,00,000, the provision of Section 44ADA can be opted, and the return should be filed before July 31st.

A Few Tax Saving Avenues for Freelancing Income in ITR in India

Freelancers have the opportunity to optimise their tax liability by leveraging a range of exemptions and deductions under different **Sections while filing their Income Tax Returns (ITR).

Here's a detailed breakdown of the available deductions:

Section 80C: This **Section covers deductions for various investments, including life insurance premiums, Equity Linked Saving Schemes (ELSS), Sukanya Samriddhi Yojana (SSY), National Savings Certificate (NSC), Senior Citizens Savings Scheme (SCSS), payments towards the principal of a home loan, contributions to pension plans, and payments made to the National Pension Scheme (NPS).

Section 80D: Freelancers can claim deductions on medical insurance premiums under this **Section. Hence, it’s necessary to buy health insurance to save on taxes.

Section 80E: This **Section allows freelancers to claim deductions on the interest paid on education loans.

Section 80EEA: First-time homeowners can benefit from deductions on the interest paid on home loans under this **Section.

Section 80G: Contributions made towards social causes are eligible for income tax benefits under this **Section.

Section 80GG: Freelancers paying house rent can claim deductions under this **Section.

Section 80TTA: Deductions can be claimed on the interest earned on savings accounts.

Section 80U: This **Section provides deductions for individuals with disabilities.

By strategically utilising these **Sections, freelancers can maximise their eligible deductions, optimising their overall tax liability during income tax filing.

What are the Freelance Income Tax Filing Deadlines for ITR for FY 2022-23 (AY 2023-24)?

Ensuring timely submission of Income Tax Returns (ITR) is crucial for the Financial Year 2022-23 and Assessment Year 2023-24. Failure to file ITR within the stipulated deadlines may result in penalties and, in severe cases, imprisonment.

Taxpayer’s Category Tax Filing Due Date
Individual/Hindu/Undivided Family/AOP/BOI (no auditing needed) 31st July 2023
Businesses that require auditing 31st October 2023
Businesses that require Transfer Pricing Report 30th November 2023
Revised ITR 31st December 2023
Belated/late ITR 31st December 2023

How to Effectively Pay Advance Tax for Self-Employed/Freelancer in India

Paying advance freelancer tax in India involves a systematic approach to ensure compliance with the Income Tax regulations. Follow these comprehensive steps to fulfill your advance tax obligations:

Estimate Your Income:

Begin by estimating your total income for the financial year, encompassing both freelancing income and any other income sources you may have.

Calculate Tax Liability:

Calculate your estimated tax liability for the financial year by applying the relevant income tax rates to your projected total taxable income. Take into consideration any applicable deductions or exemptions.

Determine Due Dates:

Refer to the due dates specified by the Income Tax Department for advance tax payments. Typically, these deadlines fall in June, September, December, and March of the financial year.

Make Advance Tax Payments:

For freelancers facing a total tax liability exceeding ₹10,000, adherence to advance tax payments in each quarter of the financial year is mandatory.

Step 1: Visit the Tax Information Network of the Income Tax Department and access the Challan 280 tab.

Step 2: Fill in essential details such as "0021" for income tax other than companies, the assessment year, type of tax payment, address, PAN, contact details, and preferred payment mode.

Make the Payment: Complete the transaction to obtain the crucial tax receipt, a vital document for subsequent income tax return filing.

Choose from various payment modes to fulfill your advance tax obligations:

Online Payment: With the help of the Income Tax Department's website or the designated bank's website for online payment. This can be facilitated through internet banking, debit cards, or credit cards.

Physical Payment: Visit authorised bank branches to make advance tax payments in person. Complete the relevant challan form and submit it alongside the payment.

Provide Necessary Details:

When making advance tax payments, ensure accurate provision of details such as your PAN (Permanent Account Number) and the relevant assessment year.

Keep Records:

Maintain meticulous records of the advance tax payments, including payment receipts or challans. These records will prove essential when filing your income tax return.

[Note: For detailed guidance and to ensure compliance with the advance tax payment process, it is advisable to consult a tax professional or refer to the official guidelines provided by the Income Tax Department. This proactive approach will facilitate smooth and hassle-free adherence to the advanced tax payment requirements.]

Due Date for Advance Tax Filing for Freelancers for FY 2023-24

The Income Tax Department has specified due dates for advance tax payments for the Financial Year 2023-24. Failure to fulfill these obligations by the stipulated dates will incur additional interest penalties under both Section 234B and Section 234C.

Due Date for AT Filing (FY 2023-24) Compliance Nature Tax to be Paid
15th June 2023 First instalment 15% of tax liability
15th September 2023 Second instalment 45% of tax liability
15th December 2023 Third Instalment 75% of tax liability
15th March 2024 Fourth instalment 100% of tax liability
15th March 2024 Presumptive scheme 100% of tax liability

Penalties for Not Paying Advance Income Tax for Freelancers in India on Time

Failing to pay or underpaying advance tax can lead to penalties under the Income Tax Act in India. The penalties depend on the circumstances and the outstanding tax amount. Here's a breakdown of the penalties for non-payment or underpayment of advance tax:

Interest Under Section 234B:

If an individual or freelancer pays less than 90% of their assessed tax liability as advance tax, they will incur interest under Section 234B. This interest is charged at a rate of 1% per month or part thereof on the unpaid tax amount. The calculation starts from the due date of the installment and continues until the actual payment of the remaining tax liability.

Interest Under Section 234C:

If the advance tax paid in subsequent installments is less than the prescribed percentages, interest under Section 234C applies. Specific rates are charged for each installment, calculated on the difference between the actual tax liability and the advance tax paid.

Penalty Under Section 234A:

Failure to pay the entire tax liability or the final installment of advance tax may result in a penalty under Section 234A. This penalty is imposed at a rate of 1% per month or part thereof on the outstanding tax amount. The calculation spans from the due date of filing the return until the actual payment.

Navigating GST for Freelancers

For freelancers, understanding the GST rules is pivotal. Here's a simple breakdown of the same:

Revenue Threshold:

If your annual freelancing revenue is below ₹20 lakh, GST is not applicable.

Goods Sales:

GST rates for freelancers selling goods depend on the type of items.

Service Income:

For freelancers, charging GST at 18% from clients is mandatory.

Zero-Rated Supplies:

No GST is levied on zero-rated supplies like exports.

Composition Scheme:

Freelancers with turnover below the specified limit can benefit from the composition scheme when selling goods or providing services.

GST Identification Number:

Filing a return becomes mandatory once your GST Identification Number is generated.

Compliant Invoices:

Ensure all your invoices adhere to GST compliance standards.

ITR Filing:

Freelancers should file their Income Tax Returns (ITR) to remain tax-compliant. Understanding the filing procedure is essential to optimise income from taxation and maintain compliance.

To Sum it Up

Mastering tax filing is vital for freelancers in India to navigate the complexities of the financial landscape. From leveraging deductions to understanding GST nuances, freelancers must stay informed and compliant.

By staying proactive and informed, freelancers can ensure a smooth tax journey, enhancing their overall financial well-being in the dynamic realm of independent work.

Health Insurance Plans by Tata AIG

Investing in the right medical insurance plans safeguards your well-being and can also be a prudent financial move, offering tax-saving benefits. Under Section 80D of the Income Tax Act, premiums paid for individual medical insurance policies for yourself, your family, and your parents are eligible for deductions, helping you reduce your taxable income.

Choosing Tata AIG for your health insurance needs can be a judicious decision. With comprehensive health coverage and a range of plans catering to diverse needs, Tata AIG ensures you get the protection you deserve.

The premiums paid for our health insurance policy provide financial security in times of medical emergencies and contribute to tax savings, aligning with your broader financial goals.

FAQS

How can freelancers benefit from the Presumptive Taxation Scheme mentioned in the blog?

The Presumptive Taxation Scheme allows freelancers to declare and pay taxes on only half of their gross annual income, providing a simplified approach to taxation for those with turnover below ₹50 lakhs.

Is it possible for freelancers to independently file their income tax returns?

Absolutely, freelancers have the capability to manage the entire tax filing process independently, ranging from calculating their tax liability to making payments through the online income tax portal.

Is Form 16 necessary for freelancers when filing their Income Tax Returns?

While Form 16 is essential for salaried individuals for tax return filing, freelancers, taxed under 'income from business and profession,' don't necessarily need it. Instead, freelancers with multiple income sources can refer to Form 26AS for accurate income tax computation. Form 26AS consolidates all sources of income and tax deductions, providing freelancers with the necessary information for filing their Income Tax Returns without relying on Form 16.

Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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