Are You a Freelancer?

Q1. What does Freelancing income means ?

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 be an employee of the company or placed on their payroll. You will not get perks (like 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.

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”. Your gross income will be the aggregate of all receipts you get while carrying out your profession. Your bank account statement is a document you can rely on to pull out this information, provided that you have received all your professional income through banking channels.

Q2. Applicability of Taxes and ITR filing for Freelancers?

Freelancers come under the purview of Income Tax and GST. If freelancers’ aggregate turnover in a year is more than Rs. 20 lakhs (Rs. 10 lakhs for North Eastern and hill states), he needs to register under GST. For most of the services, 18% is the GST rate applicable. Depending on the goods and services offered by the freelancer, the GST rate may vary.

Note: Freelancers also need to pay income tax as per the applicable rate.

Q3. Does Freelancers need to file income tax return?

 Yes. Income tax needs to be paid on both salary income and freelance income. Computation of salary income will be in a regular way and the benefit of presumptive taxation scheme can be availed for only freelance income.

Q4. Will this come under the scanner of the Income Tax department when he files his income tax return?

Income Tax Assessment in today’s era is one of the most common activity being regularly exercised by the Income Tax Department where all your income details, saving details, Account  (you operate), FD, PF, Mutual Funds, Interest income, Property sale Purchase, Shares, Investments, Foreign Tours like ways Govt. has created a 360 Degree view of your profile which is being regularly monitored by the department.

Hence in order to cope with all these one must comply with the form and Tax compliances on regular and correct manner under the guidance of Tax Professionals or advisors.

Q5. Applicability of GST to freelancers?

It can be easily explained using and illustration

As per the definition,

Any Taxable Income + Exempt Income + Nil Rate Income + Non-GST Income = Aggregate turnover for GST aspect.

Hence in the above illustration it is clear the SIA is having NON GST/Exempt income from Salary @ 15 Lacs PA but Taxable income of 7 Lacs PA is there but as per definition of Aggregate turnover her turnover would be 22 Lacs PA which results into getting SIA under the purview of GST where she should have got the GST registration done considering her to be Delhi Resident and therefore GST @ 18% on 7 Lacs should have been charged by her from XYZ Pvt Ltd and paid the same to Govt. using form GSTR3B.

Q5. How to calculate Advance Tax? The due date for advance tax and How to pay advance tax?

  • To calculate advance tax
  • Add up all your receipts and determine your total income.
  • Subtract expenses directly related to your work.
  • Add income from other sources, say a house property or savings account.
  • Find out the tax slab you belong to and calculate your tax due.
  • Remember to deduct TDS
  • If the tax due exceeds Rs.10,000, you are required to pay advance tax by the following due dates.
  • The due date for Advance Tax
  • On or before 15th 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.
  • On or before 15th December = 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.
  • How to pay advance tax?

There are two ways to do it.

  1. You can pay online through the IT Department’s website. Go here to see a screenshot guide to filing tax dues on the government website.
  2. You can also fill out a paper challan and deposit tax by physically visiting your bank.

Q6. How to file GST returns?

GST returns have to be filed quarterly or monthly based on your turnover and if you have opted for the composition scheme. Composition dealers and those with annual sales below Rs.1.5 crore for the supply of goods can file quarterly returns. For service providers, the limit is Rs.50 lakhs.

Note: Once you obtain a GST Identification number, return filing is compulsory for you.

Q7. How can I avoid taxes on freelancing?

By using Section 44ADA, freelancers can reduce their freelance income by 50% and pay tax only on half of that amount. The only condition is that the freelancer’s income should not exceed Rs. 50 lakhs in a financial year.

Or even one can also prepare his financials by keeping books of accounts ready where the margin is less than 50%.

Q8. Who can apply for presumptive taxation?

The specified professionals who render their services in Architecture, Legal, Medical, Accountancy, Artists, Interior Decoration, Engineering, Technical Consultancy, Company Secretary, Information Technology, etc. can opt for a presumptive taxation scheme only if their gross receipts do not exceed Rs. 50 lacs in the previous year.

This is not available to any person working as partnership, LLP or Pvt Ltd company.

Q9. What is the TDS rate on freelancer?

The government of India has made regulations by which an individual/company paying an individual or another company for services offered needs to deduct TDS. In the case of freelance TDS is deducted at 10%.

Rest it all depends on the nature of service being provided it can be under 194H/C/J or as per contract.

Q10. How do I claim TDS on freelancer?

By filling your ITR one can claim the refund or adjust it with self-assessment Tax for that Financial Year.

Q11. What will happen if we don’t file ITR?

If an ITR is not filed within the due date, the taxpayer will not be allowed to carry forward any loss under the head of ‘profits and gains of business or profession’ or ‘capital gains. However, unabsorbed reduction and loss under the head’s income from house property shall be entitled to be carried forward.

Moreover in case of any refund of TDS will also be lapsed.

Q12. What is the limit for tax audit?

A taxpayer is mandatorily required to get the tax audit conducted if the sales, turnover or gross receipts of business are over the limit of ₹1 crore/50Lacs in a financial year.

Q13. Should freelancers file TDS Return?

 Only once their audit under Income Tax Act is being conducted in the previous year.

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