Income Tax Filing for Mobile Developers

If you are an app developer, you must be thinking how your income will be taxable and will there be any deductions that will be available to you against your income. Read this article to get an answer all these queries. App developers can deduct the expenses they incurred in doing the job from their earnings. This could be anything from office furniture, computers to cab fares for client visits. Let’s understand the intricacies of the same with the help of the following illustration.

Freelancing Income

Aditi had a runaway hit with her task manager app on the Google App and iOS store last year. She made about 7 lakhs rupees after 35,000 downloads from all over the world. Let’s look at all the expenses she incurred as a freelancer.

Remember these expenses must be directly related to building the app. She bought office furniture, a desk, and a chair, for Rs.9,600 to work on the app. She took a high-speed internet connection that cost her Rs.12,000. She had a couple of meetings with consultants during the year and she spent Rs.8,000 on travelling. She hired a co-developer temporarily and paid her Rs.35,000 overall. Registration on the Play Store and iOS cost her Rs.10,000. Aditi can also claim depreciation on the laptop.

A depreciation of 40% is allowed on laptops as per the Income Tax Act. Depreciation on Aditi’s laptop of Rs.90,000 works out to be Rs.36,000. Aditi split her telephone bill of Rs.36,000 for the year as part business and part personal and claimed Rs.18,000 as expenses directly related to app development. She paid Rs.24,000 to the payment gateway partners as a fee.

Net earnings = Earnings – Expenses related to app development
Expenses related to app development are summed up here desk Rs. 9600 + internet charges Rs.12,000 + local travel Rs. 8000 + co-developer salary expenses Rs. 35,000 + ios and play store registration expenses Rs. 10,000 + depreciation on laptop Rs. 36000 + telephone expenses Rs. 18,000 + payment gateway fee Rs. 24,000 = Rs.1,52,600
Net earnings = Rs.7,00,000 – Rs. 1,52,600 
Net earnings from freelancing work = Rs.5,47,400

Calculating Taxable Income

Aditi’s freelancing income is Rs 5,47,400. But the total taxable income is the sum of income from the following heads:

Income from Salaries

This includes any income of salary or other payments received by virtue of employment. Aditi’s one month’s salary of Rs 1,02,000 was credited to her account and PF of Rs 1,200 and TDS of Rs 2,000 was also deducted before she quit her job at the end of April 2023.

Income from House Property

Aditi owns a one-bedroom apartment and has given it on rent to 2 students who pay her Rs 15,000 per month in total. She also paid property tax of Rs.15,000 to the local authorities. From total rental income from the house, the property tax paid is allowed to be deducted.

Income from Freelancing/Business and Profession

Income from freelancing (business or profession) as calculated is Rs 5,47,400 for Aditi.

Income from Capital Gains

Aditi did not sell any capital asset in FY 2023-24.

Income from Other Sources

Income from interest on savings account, interest from fixed deposits – this is the residual head of income, incomes which cannot be taxed under any other head of income are taxed here. Aditi has a fixed deposit on which she earned an interest of Rs 12,000. She earned an additional interest of Rs 7,800 on her savings account.

The total Taxable Income of Aditi is Rs.7,34,700.

Calculating Tax Payable

A PF of Rs.1,200 was deducted by Aditi’s previous employer. A TDS of Rs.2,000 was also deducted. A TDS of Rs.1,200 was deducted by the bank from her interest on fixed deposit. Aditi purchased a life insurance policy for Rs.50,000. She also has a PPF account in which she contributed Rs.60,000 for this year. Aditi also took out a health insurance policy and paid a premium of Rs 12,000. She also invested in an ELSS fund for Rs.25,000 on a recommendation from her friend. This is how Aditi’s tax will be calculated for the year: Investments eligible for deduction under section 80C

1. Life insurance policy premium of Rs 50,000
2. Investment in PPF of Rs. 60,000
3. Purchase of ELSS fund of Rs. 25,000
4. PF of Rs 1,200

Total: Rs.1,36,200

Other Deductions

For purchase of a health insurance policy, a maximum deduction of Rs 25,000 can be claimed under section 80D. Therefore, Aditi can claim the entire premium of Rs 12,000. Aditi can also claim deductions under section 80TTA for interest on savings bank account of Rs 7,800. The maximum deduction available under this section is Rs 10,000 or interest earned. TDS deducted Rs 2,000 by previous employer and Rs 1,200 by Bank on Fixed Deposit Interest.

Total tax payable by Aditi is Rs 26,170. Do note that Aditi has not paid any advance tax and since her tax liability exceeds Rs. 10,000 in one year – Aditi should have paid advance tax. Since no advance tax has been paid by her interest shall be charged under section 234B and 234C.

Further, it is also to be noted that if Aditi has opted for the new tax regime as per Section 115BAC, then she will not be able to claim any deductions as mentioned above from the Total Taxable Income of Rs. 7,34,700 and the tax payable on the said income under new regime will be Rs. 25,270 after availing the credit of Rs. 3,200. Hence, it is even beneficial if Aditi opted for the new regime.

Other Taxes Applicable 

Goods and Service Tax: Goods and Service Tax: This is considered a supply of service under GST law. If the total revenue from freelancing work is Rs.20,00,000 or less, then GST registration is not mandatory and one is not liable for GST. However, a person registered under GST or liable for registration must pay GST on the above services at 18% on the services provided. Exports are zero-rated and input taxes paid in the form of IGST will be allowed as a refund.

Freelancers offering software services such as designing, app development, website designing, etc., paid a service tax of 15% for the period prior to GST rollout i.e. 1st July 2017. 

TDS: The Indian Payment Gateway charged Aditi Rs. 24,000 as commission fees in the month of March. Aditi has made a payment of Rs. 24,000 to the Payment Gateway for its services. According to law, Aditi has to deduct TDS on this payment. Read more about income tax for freelancers

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