Taxation for freelancers: Tax liability, exemptions, ITR filing for freelancers
Gig workers are subject to the same income tax laws and regulations that apply to self-employed individuals.
Q.How are gig workers taxed?
Gig workers are subject to the same income tax laws and regulations that apply to self-employed individuals. Every resident whose taxable income is more than Rs.2.5 lakh in a financial year must pay taxes based on his relevant tax bracket.
Q.Do gig workers have to file their tax returns?
Yes, they must file their income tax returns by 31 July of the assessment year. They need to declare income from all jobs, such as freelance work and consulting, salary, interest and capital gains in their returns. Since TDS rate is generally lower for gig workers’ receipts, they may have to pay additional tax while filing ITR if the individual tax slab is higher due to the total income. So match the ITR details with Form 26AS and AIS to avoid tax notice. If the total is below taxable income, refund can only be claimed by filing ITR.
Q.Which deductions & exemptions are available to them?
Gig workers can claim deductions for legitimate business expenses or presumptive income under Section 44ADA. Common deductions include office rent, equipment costs, travel expenses and professional fees. In case of notified profession, 50% of gross receipt can be claimed under presumptive exemption while declaring ‘income from business and profession’.
Q.Do they have to deposit advance tax?
They have to pay advance tax if the total tax liability on projected taxable income is Rs.10,000, net of TDS or more, in a financial year. It is to be paid on a quarterly basis: 15% of advance tax by 15 June, 45% by 15 September, 75% by 15 December, and 100% by 15 March of the financial year.
Q.Is TDS deducted for gig workers?
If gig workers are providing services to clients or platforms that are required to deduct TDS, it will be deducted from salary, commission, rent, interest, or professional fees. While filing ITR, freelancers can claim the TDS and obtain information from Form 26AS. TDS is deducted at 10% and freelancers can only deduct it if they have been audited for the previous financial year. They can only be audited if the annual gross receipt exceeds Rs.50 lakh, and TDS won’t be applicable in such a scenario.
Q.Do gig workers need to register under GST?
Gig workers should register under GST if the total receipts exceed Rs.20 lakh in a financial year (Rs.10 lakh for certain Northeastern states). If registered for GST, they need to file GST returns as per the prescribed schedule.
(The author is CEO and Founder, Taxspanner.com)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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