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NEW DELHI : Outbreak of covid-19 pandemic last year resulted in job losses across sectors. In the absence of a full-time job, many took up freelance gigs till they could land a job again.
Income tax rules vary greatly for freelancers and salaried professionals. So, for the purpose of filing your income tax return (ITR), what do you do when you have worked a full-time job and freelanced in a financial year?
We answer three important questions related to freelance income tax filing as you get ready to file your ITR.
Which form should I fill?
Freelancers can file their ITR only through either form 3 or form 4, whereas income from salary has to be reported in ITR-1 or ITR-2. In this case, precedence is given to freelance income and accordingly ITR form should be chosen.
“In ITR-1, one cannot disclose the freelance income. Even if there is ₹1 of freelance income, it has to filed in declared in ITR-3 or ITR-4," said Karan Batra, founder, charteredclub.com.
Can I claim standard deduction of ₹50,000 available only to salaried professionals?
Freelancers cannot claim the standard deduction of ₹50,000 available to a salaried individual. However, if you have worked a full-time job, you can claim the standard deduction for the salary income.
“One can still claim the standard deduction from their salary component. Even if someone has had a job for one month in a financial year, they can still claim the full amount of ₹50,000," said Batra.
ITR-3 and ITR-4 have two separate income heads for salary and freelance income. “Under the salary head, one can declare the salary income and claim the ₹50,000 deduction," said Batra.
The taxpayer can also claim expenses incurred towards their work during freelancing to reduce tax outgo under the freelance head.
Are deductions under section 80C to 80U available to me if I opt for presumptive income scheme?
Yes, you can still claim deduction on PPF, mediclaim, ELSS, etc. under Chapter IV A even if you offer income for taxation on presumptive basis under section 44AD.
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