Salaried people have it comparatively easy when it comes to submitting their income tax returns (ITR). The company’s HR department sends form 16, guidelines and reminders concerning tax submission deadlines and tax-saving obligations.
Nonetheless, it is far more abstract for consultants and freelancers as they are generating income from various sources and generally have more than one client. In this blog, we would try to make the process simple for you to understand and how professional freelancers can file income tax returns online.
- Freelancer from the tax purview.
- Tax deduction at source (TDS) will be deducted from your payment.
- Claiming the expenses reduces the tax liability.
- The ITR-4 form will be applicable to you.
- Conditions on which the claim for deduction can be made for freelancers.
- Expenses that will be permitted as a deduction for freelancers.
- Expenses that can be claimed as a deduction against the income generated by the freelancers.
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Freelancer from the tax purview.
When someone earns from a manual or an intellectual skill, his or her income falls under the profits and gains of business and profession. From the point of view of tax, one will have to think of oneself as a businessperson. One will have clients the way a business has its customers, and also one will have to pay taxes on the income earned from the various clients. A list of professionals that qualify as a freelancer will be found on the internet.
Tax deduction at source (TDS) will be deducted from your payment.
Every professional service provided by you or anyone else will be subjected to ten percent TDS (tax deduction at source) under section 194J of the income tax act. One is allowed to claim a refund of TDS (tax deduction at source), just like other people do. To know more on this, on how to claim and check your TDS (tax deduction at source), you can take help from the internet.
Claiming the expenses reduces the tax liability.
You might claim the expenses that might have incurred towards your work to reduce your tax outgo. Such expenses fall under the heads of repairs, rent, office expenses, depreciation, travelling expenses and even entertainment, meal, and hospitality expenses.
The ITR-4 form will be applicable to you.
The income tax form that consultants and freelancers are obliged to fill out and file via either ITR-4 or ITR-3. ITR-3 will be applicable to income from the business or the profession. From assessment year (AY) 2017-18 (the financial year 2016-17), professionals can choose to presumptive taxation and declare fifty percent of their gross receipts at their income by submitting ITR-4.
Conditions on which the claim for deduction can be made for freelancers.
– The expense is for the freelancing work being conducted.
– It has been exclusively and entirely for the purpose of freelancer’s work.
– It has to be incurred during the tax year.
– It is not a personal or a capital expenditure of the freelancer.
– It should not be incurred for any objective that is an offence or is proscribed by the law.
Expenses that will be permitted as a deduction for freelancers.
Freelancers are allowed to deduct expenses they have incurred to do the job from their income while keeping the GST registration mandatory. It could vary from office furniture to transportation costs to visit clients. These expenses must be directly linked to the job you are doing.
Expenses that can be claimed as a deduction against the income generated by the freelancers.
– Rent of the premises or property – if one takes the property on rent for conducting his or her work, the rent paid can be deducted.
– Repairs undertaken – if one has agreed to pay for repairs to the rented property, then these repair costs can be deducted. If one possesses the business property and conducts repairs, those will be permitted to be deducted as well. Any repairs to one’s printer, laptop, other electronic equipment is also permitted to be deducted.
– Depreciation – when one buys a capital asset, such asset’s benefit is generally expected to last more than a year. Such assets are capitalised and not charged to expenses when they are bought. Each year a tiny portion of its cost is expensed and is permitted to be reduced from one’s income. The expense charged every year is known as depreciation.
– Travel expense – the travelling cost to meet one’s clients within or outside of India is permitted as a deduction.
– Entertainment, meal, and hospitality expenses can be claimed when one conducts client meetings, takes one’s clients out for lunch, or some other outings, and money has been solely spent to obtain a new business or retain an existing one.
– Domain and apps registration bought to test one’s product are also permitted to be deducted.
– Insurance and local taxes for one’s own business property.
– Office expenses – expenses incurred to conduct one’s work like buying office supplies, printer, monthly telephone bills, internet bills and conveyance expenses can be claimed as a deduction.