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Occupation of Freelancers are Growing rapidly in India. Freelancers are refers as Self Employed person who don’t work for a particular Employer. Freelancers works for Multiple Companies and Their Income is not a salary Income. So Tax Filling for freelancers in India will be in Income From Business or Profession head.

Freelancers can be defined as a self-Employed person who are involved as a Insurance Agent, Digital Marketer like Content writer, Social Media Manager, SEO Service Provider, legal Consultant, Photographers, Android and website Developers and many more.

In This Article we have Explained Income Tax return  for consultants and for other freelancers. They can declare their Income In two ways. These are two freelancer forms.

1. ITR-3 Income From Business or Profession
2. ITR-4 Income on Presumptive Basis (Section-44AD)

Option 1- ITR-3 Income From Business or Profession

When You work as a freelancer, its your business. You have Income and Expenses. Most of the Freelancers receives their payment in Bank Account. Freelancers can Have Expenses like

• Internet Charges
• Telephone Expenses
• Payment towards Softwares like SEO Tools, Testing Mobile Application tools, Video Editing tools etc.
• Freelancers can also have Employees like Graphic Designer, Interns so Salary or Stipend is Deductable from Income
• All other Business related expenses

Some of the Expenses can be Common, Business and Personal Expenses. We can divide them in suitable Ratio and only Business expense part is deductable in Tax filling for freelancers in India.

Freelancers can also claim Depreciation on their Assets like Laptop, Calculator, Mobile or any other gadgets they are using for providing services.

Now we will follow the above and compute income tax return for freelancers Through a example.

Miss Kanchan is a Digital marketer they provides Digital Marketing Services like Content writing, Social Media, and SEO services on freelance basis.

Lets say She Received Total Payment of 10,00,000 Rs. In a Last Financial year. She Incurred following Business Expenses

• Internet Charges- 15000 Rs.
• Softwares- 50,000
• Salary Paid- 80,000
• Depreciation on Assets- 40,000.

Now we will deduct all the Expenses of 185,000 from Gross Total Income of 10,00,000.

Now the Income is 815000 and This income will be called taxable Income in income tax return for freelancers

Tax will be Computed on 815,000.

Freelancers are also Eligible for Claiming Deduction under Section 80C, 80D etc like payment towards

• Tax Saving Mutual funds
• Insurance Premium
• Interest on Home Loan
• Other Deductions.

itr for freelancers can be filed through this option. After Deducting Expenses and eligible Deductions, Income will be Computed and Tax will be assessed as per Prescribed Rate. Currently Income Upto 250,000 is Exempted from tax. Income above 2.5 lakhs is taxable but we have a Rebate of 12500 rs. under section 87A so Income Upto 500,000 is Exempted from tax.

Option 2- Section 44 AD Income on Presumptive basis

This is a most suitable option for freelancers. In this option, we have to declare Income like this-

• Minimum 6% on Total receiving on Payments received in bank.
• Minimum 8% on Total Payment received in Cash.

These Profit percentage is minimum. You Can declare 40%, 50% or more as per your Business profit. If you want to declare less than 6%, then You have to go through Audit By CA and then you declare lesser then 6% income.

Now there will be No Deduction of your Business Expenses as you are already declared your profit as per the prescribed percentage.

Best Part of this section is You don’t Have to Maintain Books of Account, Profit and loss Account and Balance sheets.  Filing of ITR on Time is sufficient in this option.

Note- Option of Opting for Section 44AD is not Available for Agency services, leasing and hiring, Business having Income from Commision or Brokerage. Person having these type of Business are required to opt for Option-1 i.e. ITR-3.

Note- This Option is also available for Individual (Proprietor) , Partnership and HUF. Private limited Company and LLP are not eligible for Opting This Option.

Penalty In Case of Non-filing-

If you don’t pay tax on time, Section 234 got attracted. According to Section 234F, if you fail to file your returns on time, you have to pay a penalty of up to Rs 10,000. If the Tax filling for Freelancers in India are filed after the return filing deadline but before December 31, the penalty would be Rs 5,000. If the returns are filed on or after January 1, the penalty goes up to Rs 10,000.

Advance tax Provision

Advance Tax will be paid in case tax liability exceeds 10000 in a financial year. Due date and amount of advance tax is determined by following-

Due Date	Advance tax payable
15th june	15% of advance tax
15th September	45% of advance tax
15th september	75% of advance Tax
15th march	100% of advance tax

If you opts for 44AD, Tax On presumptive Income, than you just have to pay Advance Tax on or before 15th march in a financial year. You don’t have to pay on above dates.

If any tds is deducted, you can trace the tds credited in 26AS on Income tax portal. Tax liability will be determined after deducting Tds.

Conclusion

Choosing a suitable option for Income tax return for freelancers is totally depends on Type of Business. Option-2 will be Simple option it has its own limitations. CA’s From Tax Advisory will guide in choosing the best Suitable option for You. Just Call/ Whatsapp or mail us on the above and we will handle the rest of the work.

By Arjun Mittal

Founder & CEO

Tax Advisory

Connect with Arjun on Linkedin

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