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Tax Filing For Freelancers Research Team | Posted On Saturday, July 21,2018, 06:59 PM

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Tax Filing For Freelancers




Its tax filing time. Salaried employees are rushing to file ITR before July 31st.  A freelancer enjoys a lot of benefits when it comes to tax filing. A freelancer doesn’t have an employer telling him what to do, and laying down rules and conditions. He can claim tax deductions under Section 80 and also on the expenses of the business.

Not everyone loves a 9 to 5 job. You may want to enjoy flexibility to pursue interests. You can work from the comfort of home, a sofa and even a coworking space. All this doesn’t excuse you from the duty of filing ITR.

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Tax Filing For Freelancers


1. What is freelancing income?


Let’s say you get hired for a specific assignment for a fixed term and when this work is completed, you get paid. You don’t belong to their Company or work for them. You are not even on their payroll. You don’t enjoy the perks their employees enjoy. You don’t even have to come to office and can work from the leisure of home. Your income is not capped. You can earn any income depending on how you use time and capabilities.

The income you earn is called “Profits and gains from Business or Profession”. The gross income you earn is the aggregate of all the receipts got during the course of carrying out your profession. If you receive all freelance income to your bank account, keep bank statements handy, for easy tax filing.


SEE ALSO: How Freelancers Can Save Tax?


2. Deduct business expenses


If you are a freelancer, deduct the expenses incurred while carrying out work related activities.  Business expenses can be telephone/mobile bills, internet bills, office supplies, money spent on office furniture, cab fares and even the money spent on travel to meet clients within and outside India. If you have purchased a website domain to show off your work, the expenses can be claimed as a deduction.


These are some of the common business expenses which can be claimed as a deduction.


  • If you have taking a property on rent to carry out the activities of the business.
  • Any repairs on the rented property, or a laptop, printer or other equipment used in a business.
  • Meal, entertainment and hospitality expenses.
  • The money spent to pay the local tax and business insurance.
  • Apps which are purchased to test the products of the business.
  • Take a look at depreciation.


If you purchase a capital asset like a computer or a printer, the benefits got from this asset are expected to last for more than a year. Each year a small portion of the cost of the asset can be reduced from your income. This expense is charged each year and is called depreciation.

Let’s say you buy a laptop of Rs 50,000 which is used for freelance work. Let’s consider the straight line depreciation (SLM) of 33.33% each year and Rs 16,665 can be charged as expenses each year. Within 3 years the capital asset (the laptop), would be fully depreciated.


3. You have to calculate and pay advance tax


You have to pay advance tax once each quarter. Advance taxes of 15% would have to be paid on or before 15th June, 45% of advance taxes would have to be paid on or before 15th September, 75% of advance taxes would have to be paid on or before 15th December and 100%  of advance taxes would have to be paid on or before 15th March. If the total income tax liability after TDS has been deducted from your income exceeds Rs 10,000, then you must pay advance taxes.



Steps to calculate advance tax:


  • You will have to add up all the invoices received from 1st April. You then include future income which you will receive till March 31st. This is necessary to estimate taxable income.
  • You can deduct business expenses as explained above and investments which enjoy deductions under Section 80C, health insurance premiums paid for self, family and parents under Section 80D, and donations which enjoy the Section 80G benefits.
  • If total income tax liability after TDS exceeds Rs 10,000, then you must pay advance tax within stipulated dates.


4. Tax deductions for freelancers


You enjoy tax deductions under Section 80C up to Rs 1.5 Lakhs a year, on certain tax saving investments like ELSS, SCSS, PPF, NSC, 5 Year Tax saver FD or your contribution to EPF. Premiums paid on life insurance plans also enjoy this deduction as do repayments on the principal component of the home loan. Tuition fees paid to educational institutes for up to 2 children enjoys this deduction. This is a collective deduction on all qualified investments and expenses up to Rs 1.5 Lakhs a year.

You can also claim other Section 80 deductions like Section 80D, Section 80E, Section 80DD, Section 80DDB, Section 80G, Section 80U, Section 80TTA, Section 80EE, Section 80GGC, Section 80GG, Section 80GGB and so on up to specified limits. You can also claim tax deductions on home loan EMI (Interest) up to Rs 2 Lakhs a year under Section 24.


5. Calculate tax payable


You have to calculate the net taxable income. You can do so as follows.

Net Taxable Income = Gross Taxable Income – Deductions. You then determine the relevant tax slab you fall under.





6. Important things freelancers must remember before filing tax


  • Freelancers must fill the Form ITR-4 for Financial Year 2017-18 (AY 2018-19).  
  • Freelancers like web designers/app developers who earn income up to Rs 50 Lakhs in a financial year, opt for presumptive taxation under Section 44ADA. A professional’s income is considered to be 50% of the total gross receipts for the year and no further deductions are allowed.
  • Professional services rendered by you to clients are subject to a TDS of 10%.
  • There’s a GST of 18% on most services. You must charge 18% GST from clients for the freelancing services you render. If the total revenue from freelancing work is Rs 20 Lakhs, then GST is not applicable.


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