How to File ITR for Freelancer

If you're a freelancer unsure about taxes, this article is for you. Just like anyone earning income, freelancers must pay taxes and file returns as per the IT Act. The process for freelancers in India differs from that of employees. Let's explore freelancer tax obligations, filing procedures, and tax-saving methods. Freelancers enjoy flexibility, but with it comes tax responsibilities. Similar to running a business, freelancers provide professional services to clients, such as finance, medical, legal, or consultancy. The income tax department treats freelancer income as business profit. This guide outlines tax provisions relevant to freelancers in India.

What is ‘Freelancing’ As Per Income Tax Rules?

Freelancing, according to income tax regulations, refers to self-employment where individuals have the freedom to choose their projects and clients. Freelancers are responsible for paying income tax on their earnings derived from freelance work, categorized under "profit and gains from business and profession" by the Income Tax Act. This includes various professions like software developers, content writers, tutors, and more. Taxation for freelancers involves paying income tax at applicable rates and claiming deductions based on the chosen tax regime. They may opt for the Presumptive Taxation Scheme under Section 44ADA, allowing them to pay tax on only half of their gross annual income if total income for the year is under Rs. 50 lakhs

Additionally, freelancers may be liable for GST registration if their annual turnover exceeds Rs. 20 lakhs (Rs. 10 lakhs for certain states) and need to pay GST at a rate of 18% for most services.

Taxation for freelancers

Freelancers must pay income tax at applicable slab rates and can claim deductions under the head business and profession. They can also file ITR under the presumptive taxation scheme under section 44ADA, allowing them to pay tax on only half of the gross annual income if it doesn't exceed 50 lakhs.

Income tax rates for consultants are similar to those for salaried individuals and depend on the income slab. Unlike salaried individuals who choose a tax regime annually, consultants don't need to do so.

Choosing the correct ITR form is crucial for freelancers. If you've worked full-time for a few months and done small freelance projects, file ITR-1, adding freelance income as an additional source. For consistent substantial freelance income, include it as business income with salary income.

For freelancers throughout the financial year, filing under ITR-3 or ITR-4 is advisable. Opting for the Presumptive Taxation Scheme under Section 44ADA is an option. It exempts bookkeeping and audit requirements but requires income below Rs. 50 lakhs and showing 50% of gross receipts as income.

However, opting for this scheme means forgoing certain expense claims like electricity or laptop purchases. Choosing ITR-3 or ITR-4 depends on factors like capital gains or rental income.

ITR-3 suits those with capital gains or multiple rental incomes, while ITR-4 is for freelancers earning under Rs. 50 lakhs with no capital gains or rental income.

For freelancers below 60 years of age during FY 2023-24, the following tax rates will apply:
 

Deductions available for freelancers

Freelancers can claim deductions on their income while filing taxes under various sections:

Section 80C: Deductions for investments like life insurance premiums, ELSS, home loan principal payments, SSY, NSC, SCSS, pension plans, and NPS payments.
Section 80D: Deductions for medical insurance premiums.
Section 80E: Deductions for interest on education loans.
Section 80EEA: Deductions for interest on home loans for first-time homebuyers.
Section 80G: Tax benefits for donations made towards social causes.
Section 80GG: Deductions for house rent paid.
Section 80TTA: Deductions for interest earned on savings accounts.
Section 80U: Deductions for disabled individuals.
 

TDS for freelancers

Tax Deducted at Source (TDS) is a concept in Indian taxation where a certain amount of tax is deducted from the source of income before the payment is made to the recipient. This is done to ensure that the recipient pays the due tax on their income. TDS is applicable to both salaried individuals and freelancers. Clients often deduct TDS when making payments to freelancers. You can claim the TDS for freelancer deductions when filing the ITR form and save money.

Every professional service you provide is subject to 10% TDS (Tax Deducted at Source) under Section 194J of the Income Tax Act. You can also claim a refund of TDS, similar to your salaried counterparts. To learn more about claiming and checking your TDS refund, please read on.
 

TDS Rates for Freelancers

The TDS rate for freelancers is typically 10% of the total payment made to them. However, if the freelancer does not provide their Permanent Account Number (PAN), the TDS deduction rate increases to 20%.
Freelancers can utilize Form 26AS, which offers taxpayers a consolidated view of all the TDS/TCS deducted from their income. You can access and review the TDS taxes deducted online. This form is linked to your PAN number and provides insight into all deducted TDS amounts. When filing the ITR, ensure to include all relevant deductions.
 

How to file income tax for freelancers?

Here's the procedure broken down into steps:

•     Visit the Income Tax E-Filing Portal.
•     Download the ITR-4 form from the 'download' section.
•     Fill out the ITR-4 form thoroughly. This includes providing essential information, calculating gross total income, listing deductions and taxable total income, providing details of business and professional income, specifying TDS (tax deducted at source), and reporting advance tax and self-assessment tax particulars.
•     Use Form 26AS for tax calculation purposes. Certain sections of the form offer opportunities for tax deductions and exemptions.

    Additionally, you can claim expenses that are exclusively and wholly related to freelance work conducted during the tax year. These expenses may encompass items such as property rent, repair costs, travel expenses, municipal taxes for business property, and domain registration fees, all of which can be included as deductible expenses.
 

Conclusion

Filing your ITR as a freelancer is crucial for obtaining necessary tax refunds and serving as income proof for future needs. If you're uncertain about the process, seeking assistance from a tax consultant is advisable. They can provide guidance and ensure accurate filing, helping you navigate any complexities and maximize your tax benefits.