Tax aspects every Freelancer in India should know

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Freelancing is the talk of the town; it’s the way new generation works. So, every freelancer needs to be aware of the tax implication on freelancing. This article aims to address issues such as

  • Whether a freelancer require GST registration?
  • Is he/she supposed to file GST returns?
  • How should a freelancer file ITR optimally?

So, we are looking into the tax implications on freelancing under two separate heads i.e. the Income tax Act & Goods & Service taxes Act.

A. Under Goods & Service taxes Act

The two most crucial questions that comes up to a freelancer: Whether he/she is required to register under GST and whether filing GST returns is compulsory.

We will address these questions separately:

I.Whether GST registration is compulsory for a freelancer?

First, we need to understand that GST registration has a threshold turnover exemption of Rs 20 lakhs (this has been increased to Rs 40 lakhs for suppliers of goods, subject to respective state government’s confirmation). So, anybody having turnover over the threshold limit is required to take the GST registration.

Further, the threshold exemption isn’t available on all the cases. For instance, it is not applicable to business providing Inter-state supply.

So, whether freelancers are required to register under GST?

Normally, freelancers are service providers. A service provider is required to take GST registration only if turnover exceeds Rs 20 lakhs. Even if, they are providing Inter-state services, they aren’t required to take GST registration until their turnover doesn’t cross Rs 20 lakhs (This exemption is specifically provided to Service providers only through notification No. 10/2017).

So, if you are a freelancer providing services, you don’t require to take GST registration up to a turnover of Rs 20 lakhs.

 II. Composition Scheme for Service providers

Composition scheme is an easy scheme under GST, which requires a tax payer to file lesser returns. Now, composition scheme is available for Service providers.

Important things to know about the composition scheme:

  1. It is available to Supplier of Services (or Mixed Suppliers)
  2. Available up to annual turnover of Rs 50 lakhs
  3. Tax rate will be 6% (3% CGST +3 % SGST)
  4. No Input credit will be allowed.
  5. A composition supplier cannot charge GST to customers and has to pay GST on it’s own
  6. Cannot provide Inter-state services
  7. Only one annual return to be filed & taxes to be paid quarterly

 III. Whether filing GST return is compulsory

GST return filing is compulsory, once a taxpayer is registered under GST. It is compulsory to file applicable returns, if there is no turnover.

B. Under Income Tax Act

Freelancing Income is very well taxable under the Income tax Act. One can either report it as an income from other sources or as income from business or professional. Few aspects, one need to consider in order to save taxes & file optimally are enlisted below:

I. Using the Presumptive taxation Scheme

Presumptive taxation scheme has been made available to professionals listed u/s 44ADA. This scheme will presume your income to be 50% of your gross receipts, thus you would not be to claim any further business expenses while using this scheme.

This scheme is available for professionals having gross receipts up to Rs 50 lakhs.

Apart from presuming your income, this scheme also waives the taxpayer from maintaining any books of accounts.

II.Reporting the income as business income i.e. without using the presumptive taxation scheme

Freelancing income can be considered as your business income & this will have its own merits.

Often the freelancers earn revenue & consider the revenue as their income, while they must have incurred certain amount to provide the services, they are engaged in. Having business as a source of your income, one would be able to deduct the expenses.

Most common expenses could be

  1. Depreciation on assets
  2. Office Overheads
  3. Office Rent
  4. Client meeting expenses
  5. Contracting costs etc.

Important thing to note here is, personal expenses cannot be claimed while computing the freelancing income.

Important note: One can either use one of the above two reporting under income tax. So, it is pertinent to determine, which one of the above would be beneficial for your freelancing business.

III. Investing the right way & claiming deductions

One of the most important steps towards saving tax is “Investing Right”, this will not only help you save tax, you will also have some portion of your money saved as Investments

Various deductions are available under Income tax of which most popular ones are Deductions u/s 80C, 80D, 80CCD, 80GG etc.

IV. Filing correctly & in time to save Interest & penalties

One of the important ways to save money while filing taxes is to file correct and to file in time. Doing so, you will save unnecessary costs in the form of interest & penalties.

One must take care that:

  1. They use the correct ITR form
  2. Pay advance taxes, if applicable
  3. Consider all sources of income & calculate accurately.
  4. TDS credits are taken appropriately
  5. Claim proper deductions
  6. Determine if tax audit is applicable

Disclaimer: The above post is only for the purpose of academic discussion and should not be construed as any legal opinion in any matter whatsoever.

(The author is a CA in practice at Delhi and can be contacted at: E-mail:, Mobile: +91-9811741451)

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