Freelancing offers freedom and flexibility, but it also comes with the responsibility of managing your own taxes. Unlike salaried individuals, freelancers must handle their income computation, advance tax payments, and GST compliance. This guide simplifies taxation for Indian freelancers.
Calculating Your Taxable Income
As a freelancer, you're essentially running a business. Your taxable income is not your total revenue, but your profit.
Taxable Income = Gross Annual Receipts - Allowable Business Expenses
Examples of allowable expenses include:
- Rent for a co-working space or home office.
- Utility bills like electricity and internet.
- Asset depreciation (e.g., laptop).
- Travel costs for client meetings.
- Software subscriptions and domain/hosting fees.
Presumptive Taxation: Section 44ADA
To simplify compliance for small professionals, the Income Tax Act has Section 44ADA. If your gross annual receipts are less than ₹50 lakh, you can opt for this scheme.
- You can declare 50% of your gross receipts as your profit, and pay tax on that amount.
- You are not required to maintain detailed books of accounts.
- You still need to pay advance tax.
GST Applicability for Freelancers
Goods and Services Tax (GST) is another key consideration.
- When is it mandatory? GST registration is mandatory if your annual turnover exceeds ₹20 lakh (or ₹10 lakh for certain special category states).
- Inter-state services: If you provide services to clients outside your state, you must register for GST regardless of your turnover.
- Benefits: Registering for GST allows you to claim Input Tax Credit (ITC) on your business expenses (e.g., GST paid on a new laptop).
Advance Tax and Due Dates
As a freelancer, you must estimate your tax liability for the year and pay it in advance in four installments. The due dates are:
- 15th June (15% of total tax)
- 15th September (45% of total tax)
- 15th December (75% of total tax)
- 15th March (100% of total tax)
Failing to pay advance tax can lead to interest penalties under Section 234B and 234C.