Salaried individuals have it relatively easy when it comes to filing their income tax returns. They are usually reminded about their tax filing and tax saving obligations by the company HR. Even when they have to carry out the procedures, they just need to look at few documents. Upload their Form 16, enter in a few details and they are done with their taxes.
But for freelancers and consultants, filing taxes is a more complicated process. They don’t have income coming in from only one source; freelancers typically work for a number of clients. This is why their taxes might be more complicated. But, they do have to be filed. So here are 4 things that freelancers and consultants should keep in mind while filing their income tax:
Freelancer from a tax purview
When you earn from an intellectual or manual skill, your income is qualified as Profits & Gains of Business & Profession. From a tax perspective, you have to think of yourself as a businessperson. You have clients the way a business has customers and you have to pay taxes on the income earned from different clients. A list of professionals that qualify as freelancers is detailed here.
TDS is deducted from your payment
Every professional services that are rendered by you are subject to 10% tax deducted from source. You can claim TDS refund as well, just the way your salaried friends do. To read more about how to claim and check your TDS refund, click here.
Claiming expenses reduces tax liability
The expenses that you incur towards your work can be claimed to reduce your income and tax on it. The expenses that you can claim come under the heads of rent, repairs, depreciation, office expenses, traveling expenses and even meal, entertainment and hospitality expenses. Each of these heads have been further explained here.
The ITR-4 form applies to you
The income tax form that freelancers and consultants are required to fill out and submit is ITR-4 and Section 194J is the part of the Income Tax Act that mandates deduction of TDS from payments made for professional services. From AY 17-18 (FY 16-17), professional can opt for presumptive taxation and declare 50% of their gross receipts as their income by filing ITR-4.
Filing taxes might be a tedious process for freelancers and consultants, but it becomes hassle-free when you use ClearTax services. We have affordable pricing plans that you can use. The best part is that you can even deduct our fees from your income and claim it as an expense.