What are the tax rules applicable for freelancers in India?

Income from freelance jobs is treated as ‘profits and gains from business or profession’ for taxation purpose. This is because such income is seen as earnings from self-employment. Here are the tax rules applicable to income earned by freelancers:

Filing ITR

A freelancer can opt for only ITR-3 or ITR-4 to file income tax return (ITR).

Even if a salaried individual has earned any income from freelancing outside of their job in a particular financial year, he/she will have to opt for an ITR form eligible to those with income from business or profession.

As with business income, taxpayers with freelance income also have the option to deduct from their income such expenses that are incurred to carry out the freelance work.

These deductible expenses include rent of the property you may have taken to carry out the work and any repair costs incurred by you on such property, any repairs carried out on electronic equipment such as laptop or personal computer that you own to carry out the work, office expenses such as purchasing supplies, internet bills and phone bills, expenses related to travel undertaken for the work, conveyance bills of commute to office/co-working space and depreciation value of equipment such as laptop used in this regard.

For expenses that may qualify as personal, such as phone bills, you can allocate a portion of the expense to professional use to claim the deduction.

Freelancers are not allowed to claim the ₹50,000 standard deduction while filing ITR.

However, if in a financial year you have worked a regular job and also undertaken freelance work, you can claim a standard deduction on the salary income.

Calculating tax

The taxpayer must determine his income in a financial year from different sources and deduct expenses and eligible tax breaks to arrive at the payable tax.

Take note that most employers deduct TDS on payments made to freelancers, so include the TDS while computing tax liability.

Those with freelance income have to pay advance tax every quarter within the due date when the net taxable amount is above ₹10,000.

If the total tax that you calculate comes above ₹10,000, you will have to pay interest on it, as per the income tax law.