India ranks as one of the fastest-growing freelance markets in the world. Freelancing in the country is becoming increasingly rewarding due to supportive tax regulations and opportunities for financial savings.

Just like any other earning individual, freelancers are required to pay taxes and file income tax returns under the Income Tax Act. However, the process of filing taxes for freelancers involves some differences compared to salaried individuals.

This guide outlines the essential tax rules for freelancers, step-by-step instructions for filing income tax returns, and tips for saving on taxes.

Freelancing and Income Tax Rules in India

Under Indian tax laws, income earned through intellectual or manual skills is categorized as “profits and gains from business or profession.” Freelancers fall under this category, and their earnings are treated as business income.

Freelancers include professionals such as content writers, web designers, software developers, consultants, tutors, and fashion designers. Since freelancers often earn from multiple sources, managing their taxes can be slightly more complex than salaried individuals.

Income Tax and GST Obligations for Freelancers

Freelancers are required to comply with both Income Tax and GST regulations. If a freelancer’s annual turnover exceeds ₹20 lakhs (₹10 lakhs for North Eastern and hilly states), GST registration is mandatory. The standard GST rate for services is 18%, although it may vary depending on the specific service provided.

Freelancers must also pay income tax according to the applicable income tax slabs. Below are the tax rates under the New Tax Regime for individuals below 60 years of age:

(Include the latest tax slabs here for clarity.)

Steps to File Income Tax Returns as a Freelancer

Freelancers can choose between two tax regimes to optimize their tax liabilities. Those opting for the Presumptive Taxation Scheme under Section 44ADA of the Income Tax Act can pay tax on just 50% of their gross income if their annual earnings are below ₹50 lakhs.

If a freelancer’s income exceeds ₹1 crore annually, a tax audit becomes mandatory. Additionally, if freelancers pay over ₹30,000 to a professional in a financial year, they must deduct TDS at 10%.

Freelancers filing returns under the Presumptive Taxation Scheme need to use Form ITR-4, while those outside this scheme must file Form ITR-3.

Step-by-Step Process to File ITR:

1. Choose the Correct ITR Form:
   • ITR-3: For freelancers earning income from a proprietary business or profession.
   • ITR-4 (Sugam): For freelancers using the Presumptive Taxation Scheme under Section 44ADA.
2. Gather Necessary Documents:
   • Bank statements
   • Form 16A
   • Books of accounts
   • Invoices
   • Investment proofs
   • GST returns
3. Calculate Total Income:
   Sum up all earnings from freelancing and other sources.
4. Apply for Presumptive Taxation (if applicable):
   If gross receipts are below ₹50 lakhs, opt for Section 44ADA to reduce taxable income.
5. Register on the Income Tax e-Filing Portal.
6. Log In and Select the Relevant ITR Form.
7. Fill Out and Upload the ITR Form.
8. Verify Your Submission:
   Complete the process by verifying your ITR through Aadhaar OTP, bank account, or other methods.

Understanding TDS and Advance Tax for Freelancers

Tax Deducted at Source (TDS):

Freelancers must deduct TDS in certain cases. Here are the key sections:

• Section 194J: For payments related to professional services, royalties, or technical services (TDS @ 10%).
• Section 194H: For commissions or brokerage (TDS @ 5%).
• Section 194C: For contract work (TDS @ 1% for individuals and HUFs, 2% for others).

Advance Tax:

If the total tax liability exceeds ₹10,000 in a year, freelancers are required to pay advance tax in four installments:

• June 15: 15% of the estimated tax liability
• September 15: 45% of the estimated liability (including the first installment)
• December 15: 75% of the estimated liability (including prior payments)
• March 15: 100% of the total tax liability

How to Calculate Advance Tax:

1. Estimate Total Income: Add all freelancing income and other earnings.
2. Calculate Taxable Income: Subtract eligible expenses and deductions.
3. Determine Tax Liability: Apply the relevant tax slabs to the taxable income.
4. Adjust for TDS: Subtract any TDS already deducted.
5. Pay in Instalments: Split the remaining liability into the four due dates.

Tax Saving Tips for Freelancers

• Opt for Presumptive Taxation Scheme: If eligible, this scheme reduces taxable income significantly.
• Claim Deductions: Expenses such as office rent, internet bills, and software subscriptions can be deducted.
• Invest in Tax-Saving Instruments: Investments under Section 80C (e.g., ELSS, PPF) can reduce taxable income.

By understanding tax rules and leveraging tax-saving opportunities, freelancers can efficiently manage their finances and avoid unnecessary penalties.