Tax filing as a freelancer in India can be utterly confusing mostly because there are no specific tax laws for ‘freelancers.’ You have to basically navigate through it on your own.
In this article, I don’t want to include all the nitty gritty details and confuse you even more. You can get that anywhere else online. instead, I am going to try and put things forward in the most easiest way possible that can actually make you understand what you need to do.
Now, that we have GST out of the way, let’s get back to tax filing:
Freelancers from the tax point of view
As a freelancer, you have numerous clients across the country, and abroad who you provide your services to. That is why, you have to file taxes as a professional, a business, or a sole proprietor
The difference between your total income and total taxable income
The income you pay is dependent on which tax slab you fall under. While the tax slab is important, what’s even more important is calculating your total taxable income.
Net taxable income= Gross Taxable Income – Deductions – Profit
The gross taxable income is how much you made in an year. So, your yearly income for 2018-19 quarter will be the total money you earned from 1st April 2018 to 31st March 2019.
The deductions are your business expenses that might have occurred. Now this can include your laptop charges, broadband bill, rent, food, phone bill, cab fare to visit the clients, and even furniture.
Since you are filing as a business owner, you also show some ‘profit,’ which isn’t counted against your taxable income.
The government allows you to claim maximum of 50% of your total income as profit and deductions.
Let’s take an example
If you earned 10 lacs in this year (as a full-time freelancer), then your taxable income will be 5 lacs (50% of 10 lacs)
Now, your tax slab will be calculated as if your earned 5 lacs in the year.
The government provides this benefit in order to support local businesses. Salaried people don’t get this benefit, though.
TDS for freelancers in India
A client can deduct 10% TDS from your total payment when you have provided services for more than INR 25,000 in a financial year.
As a freelancer, you can claim this TDS refund when you are filing taxes.
For instance, if the total tax you have to pay at the end of the year is INR 15,000, and your TDS deduction in the year was INR 3,000, then you would only have to pay INR 12,000 as tax after adjustments.
In case you are filing zero tax, then INR 3,000 TDS return will be deposited in your account after 3-4 months of filing taxes.
Important note — Your client cannot charge TDS on the GST component
So, if you raised in invoice of INR 3000 + 18% GST = INR 3540
Then the TDS deducted will be INR 300 only (10% of INR 3000)
What can you do to save on taxes a freelancer in India
1- Hire a CA
If you are a full-time freelancer in India, like me, then I strongly suggest for you to hire a CA to help you with your tax filing. In the last few years, my CA has helped get a lot of deductions and save a lot of money as well.
2- Invest in SIPs and mutual funds
Investing is not just a good option to save, but it also helps with your taxes. The money you invest in SIPs and MFs is non-taxable (1.5 lacs is the maximum cap for this though. If you invest 2 lacs in an year, then INR 50,000 out of it will still be taxable)
3- Keep all your invoices in place
At the end of the year, when you are tallying everything in place, keeping all your invoices in place will help you cross check everything.
How do you manage tax filing as a freelancer in India? Do you have any questions? Let me know in the comments!