India has been recognized as one of the fastest-growing freelance markets across the globe. The COVID-19 has played a significant role in impacting the freelance market in the country. As per the report ‘Freelancing in 2020: An Abundance of Opportunities’ by Payoneer, India has witnessed a surge in the number of jobs for freelancers.
There has been a massive increase, and there were about 46% more freelancers in Quarter 2, 2020 in comparison to Quarter 1. While there are many individuals who prefer this flexible mode of working. However, filing tax returns has always been a topic of concern for freelancers.
It is critical to understand that every citizen and individual who earns a certain amount of income will have to adhere to the laws. They will have to pay taxes and file returns every year as per the laws. The procedure of filing taxes is way different for salaried employees than the freelancers.
The salaried employees can submit their Form 16 A, issued by their employer. The tax filing procedure can be quite complicated for freelancers in the country.
Here, we will look at all the aspects of registering and filing taxes as a freelancer in the country. You must even consider reaching out to a tax consultant for further assistance regarding this.
How much tax freelancers will have to pay in India?
The tax is calculated according to the income you earn annually. For instance, if you earn 1 lakh per year, you won’t be obliged to pay the taxes. You will have the relaxation, whereas if your earnings are more than 2.5% lakhs you will have to pay a certain percentage. The percentage will increase depending on your overall earnings in a year. Self-employed individuals who earn more than 20 lakhs per year may even have to register under the GST.
|
Annual Income (in INR) |
Tax Rate Applicable |
|
Income < 2,50,000 |
Nil |
|
Between 2,50,000 to 5,00,000 |
5% |
|
Between 5,00,000 to 7,50,000 |
10% |
|
Between 7,50,000 to 10,00,000 |
15% |
|
Between 10,00,000 to 12,50,000 |
20% |
|
Between 12,50,000 to 15,00,000 |
25% |
|
Above 15,00,000 |
30% |
Every freelancer should be paying their taxes annually by 30th September of each year. Missing the due date can lead to fines, and interest may be charged on your taxable income. Therefore, you must keep this in mind and pay your taxes accordingly. Refer to the above table to understand how much tax will be applicable according to your taxable income.
Filing Taxes as a freelancer
Here is a step-by-step procedure to help you understand the process of filing taxes. Before filing and proceeding with taxes, you must ensure that you have maintained an account book to keep a tab on all the expenses. By maintaining and recording all the transactions, you will even be liable for the deductions that are liable for freelancers.
Step 1: Go to the Income Tax e-filing portal or click here. With the e-filing portal, you can simply submit your details anytime, anywhere. It is a very convenient way of filing taxes for freelancers and self-employed individuals.
Step 2: The income tax form that freelancers can fill is ITR-4 or ITR-3. Therefore, you must consider downloading the same from the downloads section.
Step 3: After downloading the form, the next step is to fill the form with all the necessary details. Care needs to be taken while filling out a online tax form. Any minor error or mistake can impact your accounts and the liable taxes. You must be very specific and double-check everything before submitting. In the form, you will have to provide all the necessary information, such as gross total income, details of TDS and income from a business, details of advance tax, taxable income, and deductions. You must even maintain a record of all the bills, receipts, and deductions.
Step 4: The next step is to declare all the deductions using Form 26AS. As mentioned above, freelancers are liable for exemptions or deductions if they had used a certain amount of money entirely on their freelancing work. It may include claiming deductions for property rent, education, travel expenses, repair expenses, donations, and more. Freelancers can claim these deductions and reduce their overall taxes. However, you must read more about the deductions to understand what can be claimed and what can not be. You must maintain a record of all the deductions and claims and submit that using Form 26AS.
Step 5: After filling the ITR form and declaring your deductions, you can proceed and file your income taxes. You can submit your income taxes in the following ways:
- Upload it online – You can download the ITR form from the online portal and fill it in properly. Once you have filled in all the details, you can consider uploading it on the same portal.
- E-Verify your income tax return – One should note that they will have to get their income tax verified. Otherwise, their ITR may be treated as invalid. You will get a 10-digit code on your mobile phone as well as your mobile number. You will have to enter that to verify while filing your returns. You should consider filing your income tax returns after e-verifying the same.
If you’re not a resident of India, you will even have to consider applying for a tax clearance certificate. It is required when the income you have generated is derived from any source in India.
Individuals who are permanent residents of India may require the certificate in the following conditions:
- The tax arrears exceed Rs. 10 lakhs
- The individual has been involved in some serious financial irregularities
The authorities can raise an action against you. Therefore, it is necessary to get all the documents and maintain records of everything.
As a freelancer in India, you can even reduce your taxable income by up to INR 1.5 lakhs. You can do so by claiming different deductions. Keep the above things in mind while filing your income taxes as a freelancer in the country. You must consider consulting an expert if you experience any issues while filing the taxes.
