Not everyone is interested in working a 9 to 5 job. Some people like a little flexibility so they may engage in other activities, spend more time with their loved ones, or just avoid a boring routine. For this reason, freelancers work from home, in a hip café, or in a coworking space. According to the income tax regulations, independent contractors must pay taxes on their earnings just like salaried employees or business owners.
Income from freelancing
When you are hired to work on certain assignments for a specific duration and are compensated for the work after completion and submission, this is when freelancing revenue enters the picture. You won’t receive a paycheck from the business or be added to their payroll. You won’t receive any of the benefits (such PF) required by the Company Act. You are not needed to come into the office; rather, you may work from anywhere that is suitable for you and finish the task at your own pace (by the established deadline).
According to Indian income tax legislation, whatever money you make from using your manual or intellectual abilities is considered to be income from a profession. Such income will be subject to taxation under the heading “Profits and Gains from Business or Profession.” Your foul
The total of all revenues you receive while practising your profession will be your gross income. If all of your professional income has been received through banking channels, you can rely on your bank account statement to extract this information.
Expenses that can be deducted
Freelancers are allowed to deduct from their earnings the costs incurred to do the work. Anything from office supplies to cab fees to see clients could be included. These costs must be closely associated with the work you undertake.
Requirements For Deducting Expenditures From Freelance Income
The cost was incurred throughout the course of your freelance work and was used entirely and exclusively to further your work.
Requirements For Deducting Expenditures From Freelance Income
- The cost was incurred during the tax year and is related to the freelance work you are doing. It was fully and entirely used to further your professional goals.
- It is not a capital expense or a personal expense of the freelancer, and it is not incurred for any illegal or unlawful reason.
Amounts Of Expenses That Can Be Deducted From Income
- Rent for the building
- Rent paid on a property rented out for business purposes may be written off.
- repairs are made
- Repair expenses for the rental property may be deducted if you have agreed to pay for them. If you have
Repair expenses for the rental property may be deducted if you have agreed to pay for them. If you own the commercial property and make repairs, you may additionally deduct those costs. You may also deduct the cost of any repairs you make to your laptop, printer, or other pieces of equipment.
Depreciation
The benefit of a capital asset is typically anticipated to extend longer than a year when you purchase one. When purchased, these assets are capitalised rather than allocated to expenses. A little percentage of its cost is deducted from your income each year as an expense. The term “depreciation” refers to this annual payment.
For instance, if you spend Rs. 60,000 on a laptop to use for freelancing work, that amount will be counted as an asset. Rs. 20,000 will be charged as costs each year, assuming a straight-line depreciation of 33.33%. We would consider the asset fully depreciated after three years. It should be noted that the Income Tax Act itself specifies the kinds of assets, methods of depreciation, and rates of depreciation to be applied.
Office costs
You can deduct costs related to your job, including those for buying a printer, office supplies, monthly phone and internet fees, and travel expenses.
Travel Charges
Travel expenses to meet with clients inside or outside of India are deductible.
Meal, entertainment, or lodging costs
It can be justified by showing that money was only spent on client meetings, client dinners, or other outings with the express purpose of acquiring new clients or keeping existing ones.
local fees and insurance for your personal property used for business
Apps acquired to test your product and domain registration are also eligible expenses.
GST’s Applicability to Freelancers
In the past, freelancers were subject to VAT and service tax. The GST has now taken the place of these taxes. If you sell items, GST now applies instead of the previous VAT requirement. The things you are selling will determine the GST rate. For instance, you must charge 18% GST if you create and sell cakes to bakeries. This is the GST rate that currently applies to cakes.
Providing services
For the majority of services, GST is 18%. Therefore, you must charge your clients 18% GST for your freelancing services. To verify the most recent rates, use our convenient GST Rate finder.\
The independent contractor must determine whether TDS is applicable to all payments covered by the provisions of TDS. Additionally, after taxes have been subtracted, freelancers must deposit the tax and submit TDS returns.
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