Income Tax Filing for Freelancers| North Loop Official Blog
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15 Dec 2020

Income Tax Filing for Freelancers

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Introduction -

As a freelancer, your sources of revenue might be different from a salaried individual, but the tax implications can be the same. Even though you may work differently and receive income based on your assignments or contract-based tasks, the revenue received is taxable as per the tax laws applied for all others in the country.

In this article, we shall talk about how you can pay income tax as a freelancer and also file your income tax returns. But before we begin, let us try and understand what constitutes a freelance income and the income tax laws in the country for the same.

Freelancing income includes all revenue received for assignments or contract-based tasks for companies or organisations. And as per the income tax law in India, any revenue that you generate by implementing intellectual or manual skills is considered an income from a profession and gets taxed under the head ‘Business and Profession’.

The income earned is the sum of all receipts that you get from different clients. Some examples of freelancing revenue can include income earned as a blogger, digital marketer, web developer, designer, or photographer etc.

How can you file income tax returns as a freelancer?

Gross income calculation -The first step you can take to file an income tax return as a freelancer is to calculate your gross income for the year.

Deduct the expenses -

Tax is applicable only on the profits. Therefore, all the expenses that you incur to earn revenue can get deducted from the total income. So, for example, if you are a software developer, you can reduce the expenses incurred for buying software as a business expense and deduct that from your total income as well as tax liability.

Moreover, for those expenses that are not exclusively for business purpose or relate to your personal work as well, you can create a note of the monthly consumption or payment trends and allocate a reasonable percentage of those as your business expense.

Depreciation -

You are also allowed to deduct depreciation expenses from your gross-total income. That includes the wear and tear of the equipment you use for your business or profession purpose such as laptop, computer, camera or any other gadget. Since the monetary value of your asset decreases over time, you can use depreciation to spread its cost over a period instead of showing it upfront.

That is how all expenses, including depreciation that you use for your freelancing work, can be deducted from your income to reduce your tax liability. However, it is necessary to remember that these expenses should not be illegal or used for personal purposes.

Add income from other sources -

To calculate your gross-total income, you also have to add income from other sources, including those received from non-freelancing work. Some examples of such income can be - The gains made from the sale of a property, interest income accrued on your savings or fixed deposit account, income from trading in shares, equity or debentures or any other additional income over and above your freelancing revenue.
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The deductions that are available under the Income Tax Act, 1961 are as follows -

As a freelancer, you are also eligible to utilise the deductions available under the tax laws. Some of the most used deductions under section 80 are as follows -

Section 80C - You can claim a deduction up to Rs.1.5 lakh of your total income under this section.

Section 80CCC - This section allows you to claim a deduction for any amount that you have paid or deposited in any annuity plan of LIC.

Section 80TTA - Under this section, you can claim a deduction of maximum Rs.10000 against interest income on your savings account with a bank, cooperative society or post office. However, this section is not applicable for interest earned on fixed deposits or recurring deposits.

Section 80D - Under this section, payments made by you on health premiums of insurance policies become exempt from tax.

Section 80DD - This section allows tax deduction up to Rs.1.25 lakh for expenses you incur on the treatment of normal and severe disabilities.

Section 80DDB - Expenses that you incur for certain specified diseases become exempt from tax under this section.

Section 80E - This section allows deduction towards the loan taken for educational purposes.

Section 80G - This section allows 100% deduction for donations made to charitable funds like the Prime Minister Relief Fund, National Defense Fund etc.

Presumptive Taxation -

As a freelancer, you can also opt for the Presumptive Taxation Scheme under Section 44ADA of the Income Tax Act, 1961 if your total income is less than Rs.50 lakh in a financial year. Under this scheme, the applicable tax will be 50% of your total gross annual income. Therefore, for example, if your turnover is Rs.100, the profit will be assumed as Rs.50 and charged under the Business and Profession head.

ITR Forms for Freelancers -

You can use the ITR 4 for filing your income tax return as a freelancer. However, if you opt for the Presumptive Taxation Scheme, you should use the ITR Form 4S.

Filing date -

If your income is more than Rs.1 crore - Before 31st September

If your turnover is less than Rs.1 crore - Before 31st July

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