Tips for Filing Tax as a Freelancer

From changing economic conditions to corporate downsizing, employee dissatisfaction and the obvious attractions of working from home, there are numerous reasons behind why the trend of freelancing has picked up around the globe.

The Freelance market in India has grown leaps and bounds in the recent years. Improving infrastructure has led to more and more users getting their hands on Internet-enabled smartphones and tablets helping the trend of freelancing pick up significantly in the country.

According to Elance, an online service that connects freelancers to projects, India in a short span of time has grown to become the second largest freelancing market after the United States, which have a 15.5 million active self-employed workforce.

Freelancing in India today is a major source of income for the youth. Reports suggest 85% of all freelancers in the country are between the age of 20-30 years. For this new breed of freelancers, information about the Income tax payments on their earning from revenue streams such as Google Ads, Blogging, SEO Services, Content Services and other revenue streams of freelancing can be confusing.In today’s article, we bring forth a guide to simplify all your tax woes for income from freelancing ventures.

A freelancer’s income tax is calculated using the same tax slabs that the government sets for all individuals earning in the country, but unlike salaried individuals, the calculation of their income tax is more complicated as all their revenues are considered as taxable income. Much like businesses, expenses of a freelancer are allowed to be deducted from freelancer’s income making this process not as straightforward as filing a form 16.

Calculate your revenues
Knowing your gross income is the first step towards figuring out your taxable income. All earning receipts received in return for your freelancing work should be put in one place and added under one head. The sum of all such payments received in a financial year, i.e., 1st April to 31st March.

Income earned from heads such as rent are not to be added here. Only revenues that add directly to your business are to be added.

Calculate Depreciation and Deduct your Expenses
The tax department allows freelancers to deduct any amount that has been used for the purpose of earning revenues to be deducted as an expense incurred in generating revenues. Expenses such as Internet bills, rent paid for working space, telephone charges, payment to consultants or any other such cost that is incurred exclusively for the freelancing work is liable for deductions from the freelancer’s gross income.

Telephone bills and Internet expenses if shared between work and personal use can be allocated a certain percentage, and that can be deducted as expenses.

Further, costs incurred in meeting clients or paying for meals and entertainment are all expenses that can be deducted from your revenues.

Tax provisions for freelancers also allow for claiming of depreciation on assets such as laptops, printers, cameras or other office equipment involved in your freelancing work. Depreciation is calculated by distributing the cost of an asset over its expected lifespan which is already predefined by the tax department.

All these expenses removed from your estimated gross income is the net taxable income for a freelancer.

Deductions Under Section 80C and TDS
Like salaried individuals, freelancers also enjoy deductions listed under section 80C of the tax department. Any investment made to PPF, and all NSCs bought or payments towards life insurance premiums are all applicable for deductions under section 80C of the Taxation Act. Additionally, any TDS deducted by clients on payments or TDS deducted by banks can also be deducted from your final tax dues.

Taxation is an important revenue stream for the government, and as citizens, filing taxes is pivotal as at the end of the day these taxes only come back to us in the form of improved infrastructure and services helping improve living conditions. Having said that, filing taxes and procedures involved in it can become an arduous task. InstaOffice with its 360-degree support provides services which will assist you in filing tax returns, and make your freelancing experience just a little tension free.