Taxation for Freelancers in India Should They File TDS Returns?
Introduction
Yes, freelancers must submit TDS (Tax Deducted at Source) returns if they deducted tax at the source from payments made to professionals who supplied services to them. TDS is levied at 10% on payments made to professionals that exceed Rs. 30,000 per transaction or in aggregate throughout a fiscal year. TDS returns must be filed and the tax deducted at source must be deposited with the government.
However, freelancers are only obligated to deduct tax at source if they were audited during the preceding fiscal year and their yearly gross receipts exceed Rs. 50 Lakh. If their yearly total receipts are less than Rs. 50 Lakh and they have not been audited, there is no requirement to deduct tax at source. If TDS is applicable, the freelancer must ensure that they verify for the applicability of TDS on all payments covered by the terms of TDS, deposit the tax deducted, and file TDS returns.
TDS is withheld from your compensation as a freelancer
According to Section 194 of the Income Tax Act, you must deduct 10% TDS (Tax Deducted from Source) taxation on each professional service you give as a freelancer in India. You, like any other salaried worker, have the right to request a TDS return.
Taxation for Freelancers: Claiming expenses reduces your tax bill
As previously stated, freelancers in India simply have to pay taxes on their profits. To reduce your tax liability, you can deduct the expenditures of work-related items. These expenses are classified as rent, maintenance, office, depreciation, travel, food, hospitality, and leisure.
Taxation for Freelancers: Eligibility to File for Freelancers
Independent contractors and consultants must complete and submit ITR-3 and ITR-4 income tax forms. ITR-3 covers earnings from a business or occupation. Professionals can choose presumptive taxes beginning in AY 2017-18/ FY 2016-17 and report half of their total gross revenues as revenue by submitting ITR-4.
Conditions for Deducting Expenses from Freelancing Income
- Claiming expenses as deductions from your freelancing income might drastically lower your tax liability in India. However, certain conditions must be met before these expenses can be deducted.
- To claim a cost as a deduction, it must be incurred entirely and solely for your freelancing business. This means that the expense must be necessary for your freelance business and not personal in nature.
- If you work from home, for example, you can deduct a portion of your rent or electricity bill from your freelancing revenue. Likewise, use your automobile for freelance work. You can deduct car expenses like petrol, repairs and insurance.
- Personal expenses such as food, clothing, and personal grooming, on the other hand, cannot be deducted.
- Also expenses incurred for illegal actions or unrelated to your freelancing activity are not deductible.
- It is critical to have accurate paperwork for all expenses claimed as deductions, such as receipts, invoices, and bills. This material can be used to back up your claim if the tax authorities conduct an investigation or audit.
Conclusion
In India, freelancers are taxed and must file income tax returns. While freelancers are not normally obligated to deduct tax at source (TDS) from their payments, they are nonetheless responsible for paying taxes and filing returns. However, if a freelancer’s total receipts surpass a certain government-set threshold, they may be forced to deduct TDS on certain payments. Filing TDS returns becomes mandatory in such instances. It is critical for freelancers to understand their tax requirements, keep correct financial records, and consult with a tax specialist to ensure compliance with tax legislation and minimize any potential penalties or legal concerns.
