freelancing income related question
Is Income from Freelancing Taxable?
Yes, according to Section 28 of the Income Tax Act, 1961, freelancing income is taxable. However, it does not come under income from salary. Instead, it is classified as income from business or profession.
However, you have two options to go for when it comes to actually paying the tax and filing ITR
Option 1: ITR-3
You calculate the expenses of freelancing (internet, laptop, etc.) and reduce that from the turnover. On the basis of that, tax can be calculated either through the old tax or new tax regime and paid accordingly.
Benefit: This approach is beneficial when your expenses are more than 50% of your turnover.
Option 2: ITR-4
This method is for those people who want to follow the presumptive tax scheme under Section 44ADA.
In this approach, a minimum of 50% of the receipts are considered as profits. So, taxable income is calculated on 50% of the receipts.
Benefit: This approach is useful in the following cases -
-
Expenses are less than 50% of the revenue
-
You do not keep track of your expenses, and do not prepare any books for the same.
Note: You are legally exempt from preparing books of accounts in case you file ITR-4 under Section 44ADA.
Threshold Under Section 44ADA
You can file tax according to Section 44ADA (ITR-4) only if your receipts are under the following maximum threshold in receipts -
| Threshold Amount | Condition |
|---|---|
| Rs. 75 Lakh | If >95% of the receipts are through online payments |
| Rs. 50 Lakh | If <=95% of the receipts are through online payments |
Additional thinks to keep in mind
TDS
Your clients will deduct TDS (10% for professional services and 2% for technical) under Section 194J. You can use that to set off tax liability or claim a refund.
Advance Tax
If your estimated tax liability is Rs. 10,000 or more, then you must pay tax in installments (June, Sept, Dec, Mar).
GST
GST Registration is mandatory if annual turnover exceeds Rs. 20 lakhs (Rs. 10 lakhs for some states)