How to File Income Tax Returns For Freelancers?

Salaried individuals have it relatively easy when it comes to filing their income tax returns. The company HR department sends Form 16, reminders and guidelines about tax filing deadlines as well as tax saving obligations. However, it’s slightly more complicated for freelancers and consultants as they have income from multiple sources and usually have more than one client. In this article, we have tried to simplify the concepts and the process for freelance professionals.

Freelancer Meaning

A freelancer is an individual who is self-employed, and has the freedom to choose their work, projects and companies they would like to be associated with. Freelancers are also liable to pay income tax on the income earned by them for their projects or freelancing work. Various consultants and professionals, such as software developers, blog consultants, content writers, tutors, web designers, fashion designers, etc. qualify as freelancers. 

As per the Income Tax Act, any income generated by an individual by implementing their manual or intellectual skills is considered as ‘’profit and gains from business and profession’’. From the tax perspective, freelancing is treated as a business and profession. 

Taxation for Freelancers

Freelancers must pay income tax as per the applicable rates. Freelancers can also claim deductions depending on which tax regime the freelancer opts for. They can also file tax under the Presumptive Taxation Scheme under Section 44ADA of the Income Tax Act, 1961. When they choose a presumptive taxation scheme they can pay tax on freelance income on only half of their gross receipts, provided the gross receipts for the year are less than Rs. 50 lakhs.

The limit for the gross receipts has been increased to Rs. 75 lakhs for cases where the cash receipt does not exceed 5% of the total receipts. 

The due date for filing the income tax returns for freelancers for FY 2023-24 (AY 2024-25) is 31st July 2024. 

The following tax rates will apply for freelancers below 60 years of age for FY 2023-24:

TDS for Freelancers

Every professional service rendered by you is subject to 10% TDS (Tax Deducted from Source) under Section 194J of the Income Tax Act. You can claim a refund of TDS as well, just the way your salaried friends do. To read more about how to claim and check your TDS refund, click here.

Advance Tax for Freelancers

If as a freelancer your total tax liability is above Rs. 10,000, then you should pay the advance tax in each quarter of the financial year. The advance tax must be paid before the financial year ends in 4 instalments: 15th June, 15th September, 15th December and 15th March. Click here to learn more about advance tax payments.

Deductions Available for Freelancers

Freelancers can claim the deduction on their income under Section 80C to 80U. Thus, freelancers can claim the following deductions while filing ITR:

• Section 80C: Deductions on various investments such as life insurance premiums, ELSS, payments made towards the principal sum of a home loan, SSY, NSC, SCSS, payment made towards pension plans, NPS payment, etc.
• Section 80D: Deduction on medical insurance premium
• Section 80E: Interest on Education Loan
• Section 80EEA: Interest on home loan for first-time homeowners
• Section 80G: Income tax benefits towards donations for social causes
• Section 80GG: Income tax deduction on house rent paid
• Section 80TTA: Interest on savings accounts
• Section 80U: Deduction for disabled individuals

Applicable ITR form for Freelancers

The income tax form that freelancers and consultants need to fill out and submit is either ITR-3 or ITR-4. ITR-3 applies to income from business or profession. From AY 2017-18 (FY 2016-17), professionals can opt for presumptive taxation and declare 50% of their gross receipts as their income by filing ITR-4 under the presumptive taxation system.

How to File Income Tax for Freelancers?

Freelancers should file income tax returns within the due dates for the financial year by following the below steps:

Step 1: Calculate the gross income from 1st April to 31st March of the given financial year. 

Step 2: Calculate the expenses and deductions that can be claimed for the given financial year.

Step 3: Select the following appropriate form, i.e. either ITR-3 or ITR-4 and fill in all the required details on the form by logging into the Income Tax e-Filing portal.

Freelancers can easily file ITR from ClearTax. ClearTax offers affordable pricing plans for freelancers and independent consultants. Not only do we make it hassle-free, but also enable you to deduct our fees from your income and claim it as an expense and minimise tax liability.