How do freelancers save tax?

A freelancer is a self-employed individual who values independence in choosing their own jobs, side projects, and business partnerships. On the money they make from their projects or freelance labour, freelancers need to pay income tax. Any money received by a person who uses their physical or mental potential for freelancing is classified as “profit and gains from business and profession” under the money Tax Act. According to income tax legislation, freelancers must pay taxes on their earnings in the same manner as other business or salaried taxpayers do.

ITR-4 Presumptive Income for Freelancers

For taxpayers who choose to participate in a presumptive income scheme under Sections 44AD, 44ADA, and 44AE of the Income-tax Act, 1961, the appropriate form is ITR-4 for the Income Tax Return. Small company owners who simply keep an approximate volume of their sales ledger rather than books of accounts have to file the current ITR-4.Online content writers, bloggers, vloggers, and other independent contractors such as freelancers also need to file the ITR-4 form. 

Considering freelancers, they must perform a tax audit if their gross annual income for the year exceeds Rs. 1 crore.ITR-3 returns, which are relevant for income for bigger organisations and professions, can be filed by freelancers also who choose not to participate in the Presumptive Taxation Scheme.

Exemption and deduction

Freelancers are eligible for quite a  number of exemptions and deductions. They are:

1. Section 80C- Section 80 C provides a tax deduction of up to Rs.1.5 lakhs to independent contractors which include freelancers for investments made in funds-management programs, savings accounts, and education costs.
2. Section 80CCC- Up to Rs.1.5 lakhs, a Section 80 CCC tax deduction is given against pension schemes. 
3. Section 80CCD- All investment deductions under the Central Government Pension Schemes
4. Section 80CCF- All investments up to Rs 20,000 in long-term infrastructure bonds are exempted under Section 80 CCF.
5. Section 80 CCG- Up to Rs.25,000 is exempted under Section 80 CCG taxes when investing in government equity savings plans.
6. Section 80D- Tax deductions on specific expenses for health insurance  payments which are premium.
7. Section 80 DD: Treatment for moderate to severe disabilities is exempted with a limit up to Rs.1.25 lakh.
8. Section 80G- All donations made to charitable trusts and relief funds are 100% deductible under Section 80 G.
9. Section 80 E- Education loans are applicable for a Section 80 E tax deduction.
10. Section 80 EE- Section 80 EE offers tax benefits in relation to payments made for residential loans, with a maximum amount of Rs.50,000.

How to file ITR4?

ITR-4 pre-filling and filing services are accessible to all registered users on the e-Filing portal. This service allows taxpayers to  file their ITR-4 tax returns online via the e-Filing portal, including individual persons such as content creators, HUFs, and firms (but not LLPs). You have to fill out all six sections of the ITR-4 form before you can submit it online. The sections are:

• Personal Information
• Gross Total Income
• Disclosures and Exempt Income
• Total Deductions
• Taxes Paid
• Total Tax Liability

You need to check the accuracy of each section before the final submit.

Step 1- Personal information: You should always make sure the information that is automatically filled in from your eFiling profile in the ITR’s Personal Information section is correct. Although some of your personal information cannot be changed directly in the form, you can, however, visit your eFiling profile to make the necessary modifications.In your eFiling profile, you can edit or update your contact information, filing type information, partner information (if applicable), bank information, and authorised representative.

Step 2- Gross total income: All the  details of your income sources, such as your salary or pension, real estate holdings, business or profession, and other sources, must be verified  and should be accurate. This is done by going over the pre-filled information in the Gross Total Income section.

Step 3- Disclosures and Exempt Income: You must provide details as asked in the Disclosures and Exempt Income section pertaining to your company’s financial details, gross receipts reported for GST which is optional, and exempt income.

Step 4- Total Deductions: In the Total Deductions section of the Income Tax Act, you have to add and verify any deductions you want to take advantage of under Chapter VI-A of the Income Tax Act.

Step 5-Taxes Paid: In this step, you need to verify the taxes that you paid the year before. The tax information here includes Advance Tax, Self-Assessment Tax, TCS, and TDS from Salary and Other Income as reported by the taxpayer.

Step 6- Total Tax Liability: You will be able to view your tax computation, income computation, interest, and cess. The information with the fields you previously completed in the computation of the tax section, you must confirm the details of your tax liability.

GST Registration for Freelancers

In India, independent contractors such as freelancers who earn more than the government-set threshold which is typically Rs.20 lakh for Providing services within state and if you provide services outside state or in case of export of services than there is no threshhold limit and you are required to register for GST. This cap could change based on the state they belong to and  the kind of service they provide.

In case of export of services you can apply for LUT(Letter of undertaking) and you don’t need to pay any tax for outward supply of export services.

Step 1- Go to the GST portal and complete the online registration process, then sign in with your existing account or create a new one.

Step 2- To start the application process, navigate to the GST registration section. Fill up the registration form with requested information with accuracy.

Step 3- Fill in information about your freelance business, including the name of the company, its address, its contact details, the services it provides, and its turnover.

Step 4- Upload scanned copies of all the required paperwork, such as evidence of identity and address, as well as any additional supporting documents that the tax office may specify.

Step 5- Make sure all the information  you input is correct to avoid any issues or delays during the registration process.

Step 6- There will be a provisional ID created that will indicate that your application is being reviewed and is under process.

Step 7- The registration request will be processed by the tax authority after the submission of the application form.

Step 8- After the process is completed, you will receive your unique GSIN through email.

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The Author is an Income tax, Accounting and GST Practitioner and can be contacted at 9024915488.