Income Tax Filing (ITR) for Freelancers in India

According to the Indian Income Tax Rules, ‘income from freelancing' can be placed under "profits and gains from business and profession". As a result of freelancing, individuals generate certain income by implementing their manual or intellectual skills without being employees or placed under direct payroll. Thus, freelancers must pay taxes based on their income. Moreover, they need to file ITR in a given assessment year.

Are you a new freelancer thinking of filing for ITR? Then let’s learn about how to file ITR for freelancers and other associated vital information.

What Is the Process of Filing ITR for Freelancers?

SFreelancers involved in legal, medical, architectural, accounting, engineering, technical consultancy, film, interior decoration, and similar other professions can file ITR.

However, freelancers belonging to the non-specified areas, such as CA, doctors, lawyers, etc., can also file income tax returns.

Now the question arises, how to file ITR for a freelancer? Here’s the following step-wise guide:

Step 1- Calculate the gross income from 1st April to 31st March of the given fiscal year. Omit any debt obligations such as loans as it is not considered as income.
Step 2- Compute expenses incurred in freelance business to claim a tax deduction.
Step 3- Select the following appropriate form and fill in the essential information-
- The ITR-3 applies to individuals benefiting from business profits. Such individuals might carry on such business or profession with returns including incomes from house property, capital gains, salary/pension, etc.
- ITR-4 applies to people choosing presumptive income schemes as per the Income Tax Law Section 44AD and 44AE. If freelancers belong from professions under Section 44ADA, have business incomes as specified in Sections 44AD or 44AE, salary/pension/any form of income over ₹50 Lakhs, ITR-4 Form will be applicable.

Individuals can either download the forms from the official portal of the Income Tax Department, fill them in offline and upload the XML file in this IT portal. Alternatively, individuals can fill them in the portal and submit forms after digital verification.

Step 4- Fill in the necessary details such as taxable income, deductions, expenditures, paid advance tax.

If an individual makes above ₹1 crore in a financial year, then that income is audited by the officials of the IT Department. In this case, individuals can file ITR by 30th September of a financial year. At the same time, they can file ITR by 31st July when income is not audited.

When and How Freelancers Can Pay Advance Tax?

If a freelancer’s total tax liability is above ₹10,000, then pay the advance tax in each quarter of the financial year by following simple steps:

Step 1: Visit the Tax Information Network of the Income Tax Department and navigate to the tab of Challan 280.
Step 2: Select “0021” income tax other than companies, assessment year, type of tax payment, address, PAN and contact details, payment mode. Proceed with the payment and collect the tax receipt. This receipt is an important document for filing income tax returns.

Note that there are different forms to help file returns of income tax for freelancers in India.

How Much Tax Is Applied on Indian Freelancers?

Following income tax on freelancers, freelancers are subject to Tax Deducted from Source (TDS). According to Section 194J of the Income Tax Act, every professional service of a freelancer is subject to 10% TDS.

According to audit u/s 44AB, there are two processes of computing their taxable income. When the freelancer earns Gross Receipts lower than ₹50 Lakhs, the income tax is computed on the presumptive basis. As a result, the tax amount becomes equal to 50% of the overall Gross Receipt.

On the other hand, when Gross Receipts of a freelancer exceed ₹50 lakhs, or if the Net Profit is lower than the half of the Gross Receipt, then he or she can keep a Book of Accounts. The taxable amount here is the difference between Gross Receipts and business expenses.

Previously, the freelancers were liable to pay VAT and Service Tax. However, the changed tax policy now applies 18% GST. Henceforth, freelancers are liable to pay CGST, SGST, and IGST based on service areas.

The following tax rates will apply for freelancers below 60 years of age:

New Tax Regime:

Annual income	Tax rate
Less than ₹2.5 Lakhs	Nil
₹2.5-5 Lakhs	5%
₹5-7.5 Lakhs	10%
₹7.5-10 Lakhs	15%
₹10-12.5 Lakhs	20%
₹12.5-15 Lakhs	25%
Above ₹15 Lakhs	30%

Old Tax Regime:

Annual income	Tax rate
Less than 2.5 Lakhs	NIL
₹2.5-₹5 Lakhs	10%
₹5-10 Lakhs	20%
Above ₹10 Lakhs	30%

What Are the Tax Deductions Available for Freelancers?

Here are the following Sections that allows freelancers to claim tax deductions to lower their tax liability:

Section 80C - Freelancers can claim a maximum tax deduction of ₹1.5 lakhs against their investment towards tax-saving schemes such as ELSS and ULIP insurance.
Section 80CCD - Individuals can avail tax deduction against investment towards schemes of Central Government.
Section 80CCF - It is applicable to avail tax benefits against investment towards government-specified infrastructure bonds.
Section 80DD - Eligible freelancers can claim a maximum tax deduction of ₹1.5 lakhs against treatment expenses of disabled dependent of an assessee.
Section 80D - Tax deduction is available against paying premiums for health insurance.
Section 80G - Tax deduction is available against charitable contributions.
Section 80E - Individuals can claim a tax deduction on interest paid towards an education loan.

Besides, freelancers can enjoy tax benefits on expenses spent for freelancing work in a given financial year, such as repairing expenditures, expenses related to domain registration, etc.

Freelancers should file ITR to remain tax compliant. Hence, knowing the procedure of filing ITR for freelancers will help to save some income from taxation and remain tax compliant as well.

Frequently Asked Questions

✓ Do I need to declare freelance income?

Yes, if your Gross Receipt exceeds ₹50 Lakhs as a freelancer, you need to declare it. The tax deduction will occur if the freelancer's income is audited in the previous financial year.