Introduction

Freelancing can be a highly rewarding career, but it comes with its own set of financial responsibilities. Juggling multiple clients and projects is one thing—filing your ITR is another. Are you worried about missing deductions or making errors? You're not alone. Filing taxes as a freelancer can feel daunting, but it's crucial for your financial health. As your business grows, accurate tax filings can open doors to better financial opportunities like loans and investments. Understanding the unique tax rules for freelancers is key to optimizing your savings.

In this blog, we'll break down the process step-by-step, so you can file your ITR with confidence and maximize your tax savings

Let us now learn how freelancers are taxed in India:

What is Freelancing as Per Income Tax Rules?

Freelancing, under the Income Tax Act, is considered a profession or business. The income earned from freelancing falls under the category of profits and gains from business and profession .This classification subjects freelancers to specific tax rules that differ from those applicable to salaried individuals.

Professionals across various fields, including software developers, blog consultants, content writers, tutors, web designers, fashion designers, and more, are classified as freelancers etc. They fall under specific tax rules that differ from those for salaried employees. These rules include various income tax slabs, different methods for calculating taxable income, and distinct deductions and exemptions. Familiarizing yourself with these regulations is crucial for efficient tax management as a freelancer.

Also read: Freelancing from India- A growing trend.

Filing income tax returns (ITR) as a freelancer in India comes with specific rules and considerations. Here's a breakdown of the essential rules that apply:

Tax Slabs for Freelancers When Filing Income Tax Returns

As of FY 2023-24, the applicable rates are:

Tax Deductions And Claiming Business Expenses While Filing ITR For Freelancers

1. Presumptive Taxation Scheme under Section 44ADA

   For freelancers with gross receipts of up to ₹50 lakhs, the Presumptive Taxation Scheme under Section 44ADA offers simplified taxation. Under this scheme, 50% of your gross receipts are considered your income, and you don't need to maintain detailed accounts.

2. Applicable Forms for ITR filing (ITR-3 and ITR-4)

   1. ITR-3: For freelancers who don’t opt for the presumptive taxation scheme and have income from profession.
   2. ITR-4: For those opting for the presumptive taxation scheme under Section 44ADA.

   Choosing the correct form is crucial for accurate and compliant filing of ITR for freelancers.

3. Allowable Deductions

   Freelancers can claim deductions for various business expenses, including travel, office rent, and equipment depreciation. Ensure these expenses are directly related to your work.

4. Conditions for Deductible Expenses

   Expenses must be incurred wholly and exclusively for your freelancing business to qualify as deductible.

5. Disallowed Expenses

   Personal expenses, fines, and penalties are not deductible under income tax rules.

   Filing ITR for freelancers involves several steps, from determining your income and applicable deductions to calculating your tax liability and submitting your return. Here’s a detailed breakdown of each stage to ensure you file your taxes correctly and efficiently:

Steps Involved in Filing ITR for Freelancers

Step 1: Calculate Gross Annual Income

Begin by calculating your total income from all freelancing activities throughout the financial year i.e., from 1st April to 31st March. This includes payments received from clients for services rendered, as well as any additional income generated from freelance-related activities. Ensure that you account for all income sources to avoid discrepancies during tax filing.

Step 2: Assess Eligible Expenses and Deductions

Identify business-related expenses that qualify as deductions. Common eligible expenses include travel costs, office rent, utilities, equipment purchases, and any other costs directly associated with running your freelance business. By deducting these expenses from your gross income, you reduce your taxable income, thus lowering your tax liability.

Step 3: Choose the Relevant ITR Form (ITR-3 or ITR-4)

Selecting the correct Income Tax Return (ITR) form is essential. Freelancers typically choose between ITR-3 and ITR-4, depending on their income structure and tax regime.

Step 4: Register on the Income Tax e-Filing Portal

If you haven’t already, register on the Income Tax Department’s e-Filing portal. This platform is where you’ll submit your tax returns online. Registration requires basic details like your PAN (Permanent Account Number), name, and date of birth. Once registered, you can access various online tax services, including filing your ITR.

Step 5: Submit the Filled Form and Verify Your ITR

After selecting the appropriate ITR form, fill it out with accurate financial details, including income, deductions, and taxes paid. Double-check for accuracy before submitting it electronically. After submission, it’s crucial to verify your ITR. Verification can be done through various methods, such as Aadhaar OTP, net banking, or sending a signed physical copy to the Centralized Processing Center (CPC) in Bengaluru.

Filing ITR for freelancers in India involves several crucial steps to ensure compliance with tax regulations while optimizing your financial outcomes. By following the steps diligently, freelancers can ensure they meet their tax obligations.

Here is more information on applicable exemptions/deductions while filing ITR for freelancers:

Applicable Exemptions/Deductions

Let us understand advance tax requirements for freelancers to avoid interest penalties and keep tax payments manageable:

Advance Tax for Freelancers

1. Requirement to Pay Advance Tax

   If your tax liability exceeds ₹10,000 in a financial year, you're required to pay advance tax in installments.

2. Due Dates for Advance Tax Installments

   The advance tax is paid in four installments with due dates listed below:

   The table depicts due dates and amounts payable as advance tax in four installments.

   Due Date	Advance Tax Payable
   15th June	15% of the total tax
   15th September	45% of the total tax
   15th December	75% of the total tax
   15th March	100% of the total tax

3. Steps to Calculate and Pay Advance Tax

   Calculate your advance tax based on your expected income and pay it through the e-Filing portal or designated banks.

   Freelancers may encounter Tax Deducted at Source (TDS) on payments received from clients. Understanding TDS rules, how to claim credit for the deducted amount, and ensuring accurate documentation is essential for freelancers to manage their tax liabilities effectively. Let us look into that:

TDS for Freelancers

1. Applicability of TDS under Section 194J

   Tax Deducted at Source (TDS) may apply if you provide professional services. TDS at 10% is usually deducted by the payer if your annual payment exceeds ₹30,000.

2. How to Claim TDS Refunds

   If excess TDS has been deducted, you can claim a refund by filing your ITR. The refund will be processed based on the details you submit.

In addition to income tax, freelancers may also need to navigate Goods and Services Tax (GST) obligations. If your income exceeds the specified threshold, registering for GST and understanding input tax credit, GST returns, and compliance is crucial.

Below is a guide to managing GST deductions as a freelancer:

Filing for GST for Freelancers

1. GST Registration Requirements

   If your freelancing income exceeds ₹20 lakhs annually (₹10 lakhs in some states), GST registration is mandatory. Failure to register could result in penalties.

2. Applicable GST Rates and Filing Process

   Freelancers offering services may primarily fall under the 18% GST slab. Regular filing of GST returns is necessary to stay compliant.

Also read: E-Invoicing under GST: Everything you need to know.

Conclusion

Filing income tax returns as a freelancer in India might feel overwhelming, but it’s a key to building a successful and sustainable business. By choosing the right tax regime, maximizing deductions, and staying on top of advance tax payments, you’re not just ticking off a legal requirement. You are setting the foundation for long-term financial health and compliance with Indian tax laws.

Ready to file your ITR? While PayGlocal takes care of helping you receive payments from customers around the world, our team can also connect you to the best tax experts for your cross-border requirements. Optimize your financial flow with PayGlocal today!

DISCLAIMER:The information provided in this blog post is intended for general informational purposes only and should not be construed as professional or legal advice in any manner. While we strive to ensure the accuracy and reliability of the content, it may not reflect the latest legal developments or interpretations. Users are advised to exercise their own discretion and judgment and may consult with a qualified professional before making any decisions or taking any actions based on the information provided.