Simplifying ITR Filing for Freelancers: A Comprehensive Guide

Are you a freelancer? Don’t work as a regularly paid 9 to 5 employee? But your income exceeds the income tax exemption level? If yes, you need to be aware of the process of ITR filing for Freelancers.

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‍You must file an Income Tax Return. According to Income Tax Legislation, freelancers, like other salaried or corporate taxpayers, must pay taxes on their earnings.

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We at Jar are here to help you with the process to pay your taxes easily on time.

What are Freelancers and should they file ITR?

Freelancers are self-employed individuals who work on a range of projects for multiple clients  - from the convenience of their own home, park, or café.

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Marketing consultants, website designers, consultancies, software designers, social media managers, and content writers - are all some of the professions who qualify as freelanceINR These freelancers earn money by supplying their clients with manual and intellectual services. 

However, this convenience does not come without a cost. Freelancers, like any other business person or salaried employee, are required to pay taxes to the government on their earnings under the Income Tax Act. 

ITR Filing for a Freelancers - Accounting Methods

As a freelancer, submitting your ITR may be a little more difficult because you don't have an HR department to offer you the famous Form 16 and help you through the ITR filing procedure.

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On top of that, having more clients and varying amounts of income and expenses requires more calculations and record-keeping.

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Even as a freelancer, you must follow the same basic principles for ITR filing as you would for any other profession or firm - Income and Expenses.

You may have a variety of payment options, such as project-based payments, monthly retainers, and so on. Under section 44AA of the IT Act, you must keep an accounting book to keep a proper record of all revenue and expenses.

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Choose between the Accrual Basis of Accounting and the Cash Basis of Accounting to do so.

Applicability of Taxes and ITR filing For Freelancers

In India, freelancers are subject to Income tax and GST (Goods & Services Tax). If a freelancer's annual turnover exceeds INR 20 Lakhs (INR 10 Lakhs in the North Eastern and hill states), he/she must register for GST.

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The GST rate is 18% for the majority of services but may differ depending on the freelancer's goods and services.

Freelancers must additionally pay income tax at the current rate. The following are the income tax rates that apply to freelancers under the age of 60:

As per Old Tax Regime: 

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As per the New Tax Regime:

Which ITR Form Should you Use as a Freelancer?

When filing Tax Returns, a freelancer can use Form ITR 4. Your account books should be audited if your income exceeds INR 1 crore.

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There is no need for an audit if your turnover is less than INR 1 crore. ITR Form 4S should be used if a freelancer chooses the Presumptive Method of Taxation.

Income Tax Filing process for Freelancers

The simple steps to file Income Tax returns for freelancers are as follows:

• Step 1: Go to the e-filing portal for Income Taxes.

• Step 2: ITR-4 is available for download under the 'Download' page.

• Step 3: Complete the ITR-4 form with all of your information.

Fill in general information, gross total income, deductions, and taxable total income, details of business and profession income, TDS (tax deducted at source) details, and advance tax and self-assessment tax details.

• Step 4: Use Form 26AS to calculate your Tax. 

To save money on taxes, you can claim tax deductions and exemptions under numerous sections. Any expenses incurred solely and completely for freelance work performed during the tax year, such as property rent, repair charges, travel expenses, municipal taxes on company property, and domain registration expenses, can also be claimed.

Points to keep in mind before submitting ITR:

• Gross receipts must be listed - Freelancers must keep track of all receipts from freelancing work accomplished over the course of a financial year.

• Claim expenses - When claiming expenses, freelancers should remember the following points:

• The cost is incurred as a result of the freelance work.
• The cost is incurred during the course of the fiscal year, for example, in FY 2020-21 for AY 2021-22.
• Expenses aren't personal, and neither are capital expenditures.
• The cost is not incurred for any cause. That is a criminal offence or is forbidden by law.
• If paid in cash, expenses totalling more than INR 10,000 per day are not recognised as a deduction.
• There is no way to claim Capital Expense as an expense. Purchase of a laptop, furniture, and so on.

Deduct Expenses

You may have incurred a number of costs in your quest to give freelance services to your clients. Internet fees, rent, travel expenses, hospitality and entertainment costs, depreciation, maintenance, subscription charges, office furniture costs, and other utility bills are just a few examples.

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You may have also enlisted the help of others to help you with your freelancing employment. This is another cost to consider when calculating your spending.

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To arrive at your net taxable income for a given assessment year, you must subtract all of these expenses directly related to generating your freelancing income from your gross income.

Some expenses are can deduct: 

• The rent paid might be subtracted if you rent a property to carry out your employment.
• Repair costs might be reduced if you agreed to pay for repairs to the rental property.
• If you own the business property and make repairs, you can deduct those costs as well.
• Repairs to your laptop, printer or other equipment are also eligible for a deduction.
• Expenditures incurred in the course of your work, such as the purchase of a printer, office supplies, monthly phone bills, internet bills, and transportation expenses, can all be deducted.
• Travel expenses to meet with clients within or outside of India can be deducted.
• Expenses for meals, entertainment, or hospitality.
• It can be claimed when you hold client meetings, take your clients out to dinner, or go on other outings with the sole purpose of obtaining new business or retaining existing business.
• Taxes and insurance for your own company property in your locality.
• Registration of a domain and the purchase of software to test your product are also allowable charges.

TDS Adjustments

Deduct 10% tax from your total payment for clients for whom you freelance (as per section 194J of the IT Act) as tax deducted from source (TDS).

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You may be eligible for a return from the IT department, depending on your tax bracket. Furthermore, if you hire someone to help you with your freelance work, you must remove 10% tax from their money before passing it on to them. When filing your return, you must deduct this amount as TDS.

GST

If your total revenue for the year reaches INR 20 lakhs, you must register for GST. If your annual revenue is less than INR 20,000, you are exempt from the GST.

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You must charge GST to your clients if you are eligible for GST registration or already have a GST number. The GST rate varies depending on the freelance service you provide, but most services covered by GST have an 18% tax.

Advance Tax

If your tax liability for a given year exceeds INR 10,000, you will be required to pay taxes quarterly as a freelancer.

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This type of tax is known as 'Advance Tax' since it is paid in advance. You are required to pay a minimum defined proportion of your tax before the end of each quarter under this arrangement. 

Payments for Advance Tax can be made using the IT department's Challan 280. You will be given a receipt once you have completed this payment.

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Keep this receipt handy because you'll need it when filing your ITR. You will be penalized if you are entitled to Advance Tax but choose not to pay it under sections 234 B and 234C.

When should I file my Tax Return?

The deadline for filing an Income Tax Return is July 31st (after the end of each financial year for which it has to be filed). The Income Tax Department has the authority to extend this deadline.

What if you miss the deadline or wish to file a Tax Return after the Income Tax Return Filing Deadline has passed?

Even if you miss the deadline, you can still file a Late/Belated Return. Before three months before the relevant assessment year, a late income tax return can be filed.

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You have until December 31, 2021, to file your ITR for the fiscal year 2020-21, which has been extended until March 31, 2022.

Now that you know how and when you are required to file an ITR, you must ensure that you finish the process each year before the deadline.

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(You don't want to jump on the wrong side of the law, right?) Start making your Income Tax files cleaner and stronger.

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As a freelancer, keep an account book and records of everything. Choose the right form.

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File accurate income tax returns; and if you require any assistance, do not hesitate to contact a professional.