Taxability of Income of Freelancers

Everyone wants to be his or her own boss. Freelancer is a person who is self-employed and not necessarily committed to a particular employer for long-term. Fields where freelancing is predominant include experts services of Chartered Accountants, lawyers, business Consultants, web designers, etc. Freelancer works for particular type of engagement for specific amount of fees.

For example- If Mr. Ram wants to get his company registered under GST, than he can search for freelancers online and get his work done for specified amount of fees. India has about 15 million freelancers and they have been significantly boosting the growth of start-ups.

TABLE OF CONTENTS

1. Income taxable under profits and gains from business and profession and not Salary

• Income of Freelancers is taxable under the head income from business and profession. If they are engaged in providing services than income shall be taxable under the head Profession.
• All the expenses incurred for earning income shall be allowed as deduction for computing taxable profit.
• Books of Account i.e. cash book, ledger, copies of bills are required to be maintained if gross receipts from profession in any one the last 3 years exceed Rs.1.5lacs.
• Audit of accounts are required if gross receipts from profession exceeds Rs.50lacs.
• Every resident freelancer can opt for presumptive taxation scheme if gross receipts from profession do not exceed Rs.50lacs. Under scheme he can declare 50% of gross receipts of profession as his presumptive income.
• Form 15CA and CB is required to be filed if foreign currency is required to be remitted to non-resident freelancer.   
• If audit of accounts are required then due date for filing income-tax returns is 30^th Sept otherwise 31^st

2. Tax deducted at source

• TDS on Professional service are charged @ 10%. So freelancer will receive payment after deduction of TDS.
• If freelancer is non-resident, than his income will be taxable in India and service receiver will make payment after deducting TDS. For claiming refund of TDS deducted freelancer has to file return of income in India.
• If freelancer takes services from some other professional, then he has to deduct TDS and file TDS returns.

Note: TDS rates have been reduced by 25% from 13^th May 2020 to 31^st March 2020 due to Covid-19.

3. GST for Freelancers

• Freelancers who provide services have to raise bill imposing GST @18% or if sells goods than GST shall be imposed as per rate of GST in respective product.
• Freelancers are required to get themselves registered under GST if gross receipt from profession exceeds Rs.20lacs. In some states like Assam, Manipur, Nagaland, Sikkim, Arunachal Pradesh, etc. the limit is Rs.10lacs.
• Service providers can now opt for composition scheme from 1^st April 2019 whose annual turnover is Rs.50lakhs.
• GST returns are required to be filed according to scheme opted.

4. Our comments

Freelancing is a modern style of working. When goods are being sold online, sale of services in online platform gave birth of freelancing concept. There are large numbers of freelancers working online and providing services and making lacs of money. It includes both resident and non-resident freelancers. Taxability of income of freelancers is same as taxability of business income. Many other things are required to be seen depending on nature of services provided.

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The above comments do not constitute professional advice. The Author can be reached at companyfinancialtree@gmail.com or visit website www.financialtreecompany.com . My name is CA Divya Agrawal and I am Practising Chartered Accountant, CEO and Founder of FINANCIAL TREE COMPANY (An online return filing and Tax Consultancy Company) where we have taken an initiative that allows person to Pay from Heart. We also upload educational videos in You tube and name of our channel is FINANCIAL TREE COMPANY. Our aim is to help people in improving their financial health by spreading knowledge and love. Stay Financially Fit and Healthy.