Freelancing income refers to an income or money earned by working on specific assignments for a specific term and getting paid for the work upon completion and submission. This will not be like a usual salaried income and there will be no other benefits like PF, Gratuity as given to a normal salaried individual.

Conditions To Be Taxable as Freelancing Income:

  • The expense should be earned from the freelancing work.
  • It is earned during the particular financial year

Books Of Accounts Needed to Be Maintained by Freelancers:

The Freelancers can keep their books of accounting on

1. Basis of Accounting (also called Mercantile Basis)- Income is accounted or booked when income is received

2. Cash Basis of Accounting – Expenses are accounted or booked when the obligation arises.

How To Choose an Accounting Method?

It may appear that using the cash basis of the accounting method will reduce your tax liability. However, the reality is you will not be able to achieve any tax reduction. Once you choose a method of accounting you are expected to regularly comply with that method.

How Is Income of Freelancers Taxed:

Any income that you earn by displaying your intellectual or manual skills is the income from a profession according to income tax laws in India. Such income will be taxable as “Profits and Gains from Business or Profession. For calculating tax liability, one must first calculate the net tax liability.

Net Taxable Income = Gross Taxable Income – Deductions.

Freelancers can also deduct expenses from their income that have been incurred for completion of the task under section 80c of ITA. The maximum number of deductions claimed under 80C is Rs. 150000

Applicability Of GST on Freelancer Income:

The GST is applicable depending upon the providing of service or trading of goods.

For selling goods, the rate of GST will depend on the items that you are selling. For example, if you make and sell cakes to bakeries then you must charge 18% GST. Currently, this is the applicable GST rate on cakes.

Also, if you are providing freelancing services, you must charge 18% of GST from your clients.

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The author Sushant Gangurde is a legal analyst @Taxblock India who aims to educate people about various tax laws and financial planning.

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Taxblock, founded in 2019, is a fintech startup located in Pune, Maharashtra. We are enrolled as an E-Return Intermediary with Income Tax Department & have established an In-House team of Technology & Tax Experts to build a “Financial Compliance Ecosystem” for Individual & Corporate View Full Profile

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