Tax for freelancers in India in 2023
Freelancers in India are considered self-employed individuals and are required to pay taxes on their income. The tax system in India is governed by the Income Tax Act, 1961, which defines the rules and regulations for tax payments by individuals, including freelancers.
As a freelancer, you are required to file your tax returns annually. Your tax liability will depend on your total income during the financial year. The income tax rates for freelancers in India vary based on the amount of income earned during the year.
In addition to the income tax, freelancers in India may also be required to pay a professional tax to the state government, depending on the state they reside in. The professional tax rates and rules may vary from state to state.
Freelancers in India can also claim deductions on certain expenses, such as rent, office expenses, and other expenses related to their freelance work. These deductions can help reduce their tax liability.
It is important for freelancers in India to keep track of their income and expenses and maintain proper records to ensure accurate tax filing.
Lets understand in detail the important points which is required to follow by a freelancer:-
Process of Filing ITR for Freelancers
Freelancers involved in legal, medical, architectural, accounting, engineering, technical consultancy, film, interior decoration, and similar other professions can file ITR.
However, freelancers belonging to the non-specified areas, such as CA, doctors, lawyers, etc., can also file income tax returns.
Now the question arises, how to file ITR for a freelancer? Here’s the following step-wise guide:
- Step 1– Calculate the gross income from 1st April to 31st March of the given fiscal year.
- Step 2– Compute expenses incurred in freelance business to claim a tax deduction.
- Step 3– Select the following appropriate form and fill in the essential information-
- The ITR-3 applies to individuals benefiting from business profits. Such individuals might carry on such business or profession with returns including incomes from house property, capital gains, salary/pension, etc.
- ITR-4 applies to people choosing presumptive income schemes as per the Income Tax Law Section 44AD and 44AE. If freelancers belong from professions under Section 44ADA, have business incomes as specified in Sections 44AD or 44AE, salary pension/any form of income over ₹50 Lakhs or ₹75 Lakhs ( in case cash transaction is not more than 5%) updated in budget 2023 , ITR-4 Form will be applicable.
Individuals can either download the forms from the official portal of the Income Tax Department, fill them in offline and upload the XML file in this IT portal. Alternatively, individuals can fill them in the portal and submit forms after digital verification.
- Step 4– Fill in the necessary details such as taxable income, deductions, expenditures, paid advance tax.
If the gross annual income exceeds Rs. 1 crores, a tax audit for business income is required to be done. If an service provider makes above ₹50 Lakhs in a financial year, then that income is audited by the officials of the IT Department. In this case, individuals can file ITR by 30th September of a financial year. At the same time, they can file ITR by 31st July when income is not audited.
Applicability of Advance Tax in case of a freelancer
If a freelancer’s total tax liability is more than Rs. 10,000 in a year. then freelancer needs to pay the advance tax as per the due dates prescribed bt following the following steps:
- Step 1: Visit the Tax Information Network of the Income Tax Department and navigate to the tab of Challan 280.
- Step 2: Select “0021” income tax other than companies, assessment year, type of tax payment, address, PAN and contact details, payment mode. Proceed with the payment and collect the tax receipt. This receipt is an important document for filing income tax returns.
Due dates for Advance Tax
Applicability of Taxes and ITR filing For Freelancers
Freelancers in India come under the purview of Income Tax and GST (Goods & Services Tax). 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.
Freelancers also need to pay income tax as per the applicable rate. Following are the income tax rates applicable for freelancers below 60 years of age:
Old Tax Regime:
New Tax Regime:
TDS on Freelancer:
Every time a freelancer makes a payment to professionals which exceeds Rs. 30,000 (aggregate during the financial year), TDS is applicable at the rate of 10%.
Applicable/Exemption in case of freelancer:
Section 80C- Deduction upto Rs. 1.5 Lakh on investment towards ELSS, ULIP, insurance, FD’s, principal part of home loan etc.
It is recommended to consult with a qualified tax professional or accountant for guidance on tax planning and filing.