How to File ITR for Freelancer

Applicability of Taxes and ITR filing For Freelancers

Freelancers in India come under the purview of Income Tax and GST (Goods & Services Tax). If a freelancer's aggregate turnover in a year is more than Rs. 20 lakhs (Rs. 10 lakhs for North Eastern and Hill states), he needs to register under GST. For most of the services, 18% is the GST rate applicable. Depending on the goods and services offered by the freelancer, the GST rate may vary.

Freelancers also need to pay income tax as per the applicable rate. Following are the income tax rates applicable for freelancers below 60 years of age:

The income tax slabs as per the New Tax Regime are as follows-

The income tax slabs as per the Old Tax Regime are as follows-

Depending on which tax regime the freelancer opts for, tax deductions can be claimed. Freelancers can make use of the Presumptive Taxation Scheme under Section 44ADA of the Income Tax Act, 1961, and pay tax on freelance income on only half of their gross annual income, provided the total income for the year is less than Rs. 50 lakhs.

If the gross annual income exceeds Rs. 1 crores, a tax audit for business income is required to be done. 

Every time a freelancer makes a payment to professionals that exceeds Rs. 30,000 (aggregate during the financial year), TDS is applicable at the rate of 10%. Freelancers can file income tax returns by using the ITR-4 form under the Presumptive Taxation Scheme.

Freelancers not utilizing the benefits of the Presumptive Taxation Scheme can file their returns using the ITR-3 form, which is applicable for income from business or profession.

Income Tax Filing Process for Freelancers

Following are the simple steps to follow for tax filing for freelancers in India:

Step 1: Fill in your ITR form.

a) ITR-3: For individuals and Hindu Undivided Families (HUFs) having income from a proprietary business or profession.

b) ITR-4 (Sugam): For individuals, HUFs, and firms (other than LLP) who have opted for the presumptive income scheme under Section 44ADA.

Step 2: Gather the Required Documents

Ensure you have the following documents ready:

• Bank Statements
• Form 16A
• Books of Accounts
• Invoices
• Investment Proofs
• GST Returns

Step 3: Calculate Your Total Income

Step 4: Apply Presumptive Taxation Scheme (if applicable). If your gross receipts are up to ₹50 lakh, you can opt for the presumptive taxation scheme under Section 44ADA.

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

Step 5: Login and Select the ITR Form.

Step 6: Upload the filled form. 

Step 7: Verify your ITR. 

Some of the Applicable Exemptions/Deductions

Now that you know how to file ITR for freelancer-

TDS for Freelancers in India

Tax Deducted at Source (TDS) is a mechanism implemented by the Indian government to collect tax at the source of income. Freelancers in India are subject to TDS under certain conditions.

The relevant sections under which TDS can be deducted are:

1. Section 194J: This applies to fees for professional services, technical services, royalty, and non-compete fees. TDS is deducted at 10%.
2. Section 194H: This applies to commission or brokerage. TDS is deducted at 5%.
3. Section 194C: This applies to payments for contracts, including those for carrying out any work. TDS is deducted at 1% for individuals and HUFs and 2% for others.Advance Tax for Freelancers

Due Consideration of Advance Taxes for Freelancers

Freelancers with an annual tax liability of more than ₹10,000 are required to pay advance tax. This includes income from freelancing, as well as any other income sources like interest, rental income, etc.

The advance tax needs to be paid in four instalments during the financial year:

• 1st Instalment: By June 15 - 15% of the total estimated tax liability
• 2nd Instalment: By September 15 - 45% of the total estimated tax liability (including the 15% already paid)
• 3rd Instalment: By December 15 - 75% of the total estimated tax liability (including the amounts already paid)
• 4th Instalment: By March 15 - 100% of the total estimated tax liability

To calculate the advance tax, follow these steps:

• Estimate Total Income: Calculate your total income from freelancing and other sources for the financial year.
• Estimate Taxable Income: Deduct allowable expenses and deductions to arrive at your taxable income.
• Calculate Tax Liability: Compute your tax liability based on the applicable income tax slabs.
• Adjust for TDS: Subtract any TDS already deducted from your payments to arrive at the net tax liability.
• Pay in Instalments: Divide the net tax liability as per the due dates mentioned above.

Knowing the tax rules, benefits of presumptive tax schemes can help freelancers save the tax outgo and file income tax return with ease.

Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.