Freelancing has become one of the most profitable options today. The professionals who are self-employed and work with an organization or a team for a particular time are called freelancers.
The income of freelancing is earned when hired for specific assignments for a specific term, where payment is received upon completion and submission. Any income that is earned by displaying intellectual or manual skills is treated as income from a profession and is taxable as “Profits and Gains from Business or Profession” under the Income Tax Law.
ITR forms for Freelancers:
The income tax returns form that you need to fill out and submit is either ITR-3 or ITR-4. The ITR-3 is applicable if you have income from a business or a profession. Certain eligible professionals may choose the presumptive taxation scheme and declare 50% of the gross receipts as income in ITR-4 form. Several online ITR filing platforms offer affordable pricing plans for freelancers and independent consultants. Not only do these platforms make it hassle-free to file your return, but also help you claim TDS refunds.
Income Tax Slabs:
If you have an income up to Rs 2.5 lakh in a year, you will not be taxed. In case your income is between Rs 2.5 lakh and Rs 5 lakh, you will be taxed at the rate of 5%, between Rs 5 lakh and Rs 10 lakh at the rate of 20%, and more than Rs 10 lakh at the rate of 30%. In case your total tax liability for a financial year is more than Rs 10,000, you will have to pay taxes for each quarter. This is known as advance tax. If you haven’t paid any advance tax – you’ll have to pay penal interest.
Claiming Expenses Reduce Tax Liabilities:
Your expenses which are directly related to earning your business income are allowed to be deducted from your receipts. These expenses can be in the form of telephone charges, internet charges, and so on. You must also deduct the depreciation costs from the annual turnover such as wear and tear of equipment.
TDS Deduction:
Every professional service rendered by you is subject to 10% TDS (Tax Deducted from Source) under Section 194J of the Income Tax Act.
Tax deduction for investments: Deductions up to Rs 150,000 can be claimed for investments made in National Saving Certificates, Public Provident Fund, Fixed Deposit, Post Office Time Deposit Account, Life Insurance, Payment of tuition fees to school, college, University, Investment in Units of UTI or mutual fund.
Tax deduction of education loan: If a freelancer has taken a loan from a financial institution or an approved charitable institution for his higher education or higher education of his relative, then a deduction shall be allowed in respect of the interest paid by such an individual. This deduction is allowed for 8 financial years or until such time the interest is paid in full. There is no upper limit to the deduction allowed under this provision.
Tax deduction for Interest: Interest on deposits (not being Time Deposits) in a savings account with a banking company, cooperative society or post office shall be allowed as a tax deduction. It has a general limit of Rs 10,000 for individuals (Rs 50,000 for senior citizens). This is a provision that could be used by every freelancer to lower their taxable income to the tune fo Rs 10,000.
Deduction for Medical treatment in case of disability: Freelancer who has incurred expenses for medical treatment (including nursing), training and rehabilitation on account of his disability or disability of a dependent family member, can claim deduction up to Rs 75,000 for disability and Rs 125,000 in case of severe disability from the gross total income.
