Income Tax Filing (ITR) for Freelancers in India

Who are Qualified as Freelancers?

According to the Indian Income Tax Rules, ‘income from freelancing' is the earning from a profession using your intellectual or physical capabilities and can be placed under "Profits and Gains from Business and Profession". 

Thus, freelancers are individuals who generate a 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.

The ITR filing process for freelancers in India is varies from that of salaried individuals. Freelancers involved in legal, medical, architectural, accounting, engineering, technical consultancy, film, interior decoration, and similar other professions can file ITR.

Freelancers belonging to 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 stepwise 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, 44ADA and 44AE. If freelancers belong from professions under Section 44ADA, have business incomes as specified in Sections 44AD and gross receipt from profession does not exceed ₹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 the gross receipt from profession exceeds Rs 50,00,000, then individuals need to get an account by Chartered Accountant u/s 44AB, In case of the audit the assessee need to file income tax return before 31st October. And in case the assessee gross receipt does not exceed rs 50,00,000, he may opt the provision of 44ADA and file the return before 31st July.

Conditions to Claim Tax Deductions on Freelancing Income

Similar to other taxpayers, freelancers can also claim tax benefits on freelancing income in the form of deduction only if they fulfil certain conditions, such as:

• Tax deductions are only applicable for expenses directly related to the freelancing being carried on.

• It is completely utilized only for the purpose of your freelancing work.

• The expenses are spent during a fiscal year. 

• The freelancing expenses should not be a capital expenditure or used for freelancer’s personal use.

• It is not incurred for any illegal purpose. 

Freelancing Expenses Eligible for Deduction Claim Against Income

• Rental Property 

• Expenses on repairing

• Depreciation

• Office expenses 

• Expenses on travelling 

• Expenses on food, entertainment, or hospitality

• Local taxes and insurance for your business property

• Other expenses including Domain registration and apps purchased for testing purposes 

The GST applicable to freelancers is as follows:

• If your total revenue from freelancing work is less than ₹20 lakh per annum, then you don’t have to pay any GST. 

• For freelancers selling goods the rate of GST will depend on the type of items sold.

• If you earn freelancing income through providing services, then you must charge GST @ 18% from your clients. 

• You don’t have to pay any GST on zero-rated supplies such as exports. 

• Freelancers can avail of benefits under the composition scheme if they are selling goods or providing services with a turnover less than the specified limit.

• Once your GST Identification Number is generated, filing a return is compulsory for you. 

• All your invoices should be GST-compliant.