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Taxation for Freelancers- How to File an ITR for Freelancers in India?

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When it comes to filing their income tax returns, salaried individuals have it relatively easy. The company's human resources department sends Form 16, as well as reminders and guidelines about tax filing deadlines and tax saving obligations. However, it is slightly more complicated for freelancers and consultants because they earn money from multiple sources and usually have multiple clients. We attempted to simplify the concepts and process for freelance professionals in this article.

 

What Is 'Freelancing' According to Income Tax Rules?

What Is 'Freelancing' According to Income Tax Rules?

According to Indian Income Tax Laws, any income generated by an individual through the application of their manual or intellectual skills is considered "profit and gains from business and profession". Freelancing is considered a business and a profession by the IRS. Freelance consultants and professionals include blog consultants, software developers, content writers, web designers, tutors, fashion designers, and others. Due to income from multiple sources, income tax filing for freelancers may be slightly complicated.

Tax Applicability and ITR Filing for freelancers
 

Tax Applicability and ITR Filing for freelancers

In India, freelancers must pay Income Tax and GST (Goods & Services Tax). A freelancer must register for GST if his total annual revenue exceeds Rs. 20 lakhs (Rs. 10 lakhs for the hill states and the North Eastern states). The GST rate for the majority of services is 18%. The GST rate may differ depending on the goods and services provided by the freelancer.

Tax deductions can be claimed depending on which tax regime the freelancer chooses. Freelancers can take advantage of the Presumptive Taxation Scheme under Section 44ADA of the Income Tax Act of 1961, which allows them to pay tax on freelance income on only half of their gross annual income if their total income for the year is less than 50 lakh. A tax audit for business income is required if the gross annual income exceeds Rs. 1 crore. TDS is levied at a rate of 10% on all payments made to professionals by a freelancer that exceed Rs. 30,000 (in total during the fiscal year). Under the Presumptive Taxation Scheme, freelancers can file income tax returns using the ITR-4 form.

Freelancers who do not use the Presumptive Taxation Scheme can file their returns using the ITR-3 form, which is used for income from a business or profession. The ITR filing deadline for FY 2021-22 and AY 2022-23 is July 31, 2022.

Process of Filing Income Tax for Freelancers

Process of Filing Income Tax for Freelancers

  • Go to the Income Tax E-Filing Portal.
  • Download ITR-4 from the 'download' menu.
  • Fill out the ITR-4 form completely. This includes filling out general information, gross total income, deductions, and taxable total income, business and profession income details, TDS (tax deducted at source), and advance tax and self-assessment tax details.
  • Form 26AS should be used to calculate your tax. To save tax, various sections allow for tax deductions and exemptions. Any expenses incurred solely and entirely for freelancing work performed during the tax year, such as property rent, repair expenses, travel expenses, and local expenses, can also be claimed.
Filing tax return

Filing tax return

Filing tax return-

You have two options for filing your tax returns:

1.Download the ITR-4 form, fill it out offline, save the resulting XML file, and upload it.

2.Fill out the ITR-4 form online at the income tax e-filing portal and submit it once it has been e-verified.

If the freelancer's total tax liability for the fiscal year exceeds Rs. 10,000, he or she must pay advance tax every quarter. Here is a procedure for paying advance tax

  • Visit to the IT department's tax information network
  • Proceed under challan 280 option
  • Fill in your personal information - choose (0021) income tax other than corporations, the tax payment type, the correct assessment year, and provide your address, PAN number, and other contact information, as well as the mode of payment you prefer.
  • Before you proceed, double-check the information.
  • Make payment and get the tax receipt
  • Keep the receipt safe in case you need to provide the same information when filing your income tax return.
TDS Deductions Must Be Credited

TDS Deductions Must Be Credited

All income earned by a freelancer after deducting TDS (Tax Deducted at Source) is applicable to exemptions. When clients make payments to freelancers, they frequently deduct TDS. When filing the ITR form, you can claim the TDS for freelancers deductions and save a lot of money.

For this purpose, the freelancer can use Form 26 AS. All TDS taxes deducted online can be found at TRACES. The form is linked to the PAN number and allows you to see all TDS deducted. Make sure to include all deductions when filing the ITR.

Advance Tax

Advance Tax

When a freelancer's total tax liability exceeds Rs 10,000, he or she may be required to pay Advance Tax. Advance taxation is the payment of taxes at regular intervals throughout the year rather than paying the tax all at once. If you do not pay this tax, interest will be charged on your final tax account under Sections 234 B and 234 C of the Income Tax Act.

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