It has always been a hassle for small taxpayers, such as small businesses and freelancers, to file taxes effectively. Freelancers, in particular, juggle multiple roles and receive payments from multiple sources, both domestic and international. To ease their burden regarding taxes and compliance, the government has devised a specialised scheme called the Presumptive Taxation Scheme. If you run a small business or are a professional, such as a freelancer, you can choose the Presumptive Taxation Scheme as an ideal method for filing taxes for freelancers in India.&nbsp;

The Presumptive Taxation Scheme is a tax scheme introduced by the Central Board of Direct Taxes (CBDT) to allow small taxpayers, such as small businesses or freelancers, to pay income tax on presumptive income and not actual profits. Section 44AD and Section 44ADA define the rules and guidelines for the presumptive taxation scheme.&nbsp;

Understanding Section 44AD: Presumptive Scheme for Businesses

Section 44AD specifies that a business can opt for the presumptive taxation scheme if its annual turnover does not exceed Rs. 2 crores (or Rs. 3 crores if 95% of the receipts are through online modes).

Individuals who are residents, resident partnership firms (excluding Limited Liability Partnership Firms LLP), and resident Hindu Undivided Families (HUFs) are eligible to benefit from the presumptive taxation scheme under Section 44AD, provided their annual turnover or gross receipts do not exceed the specified limit in the preceding financial year.

Under Section 44AD, businesses can report a minimum of 6%-8% of the gross sales or turnover as income in their ITR without having to maintain extensive books of records

Section 44ADA: Presumptive Taxation Scheme for Professionals&nbsp;

Under Section 44ADA of the Income Tax Act, professionals such as freelancers with an annual turnover of up to Rs. 50 lakhs can opt for the Presumptive Taxation Scheme.

But that's not all. If 95% of the receipts are through online modes, the limit increases to Rs. 75 lakhs for a professional.

According to the rules specified in Section 44ADA, the gains or profits from the profession must be equal to or greater than 50% of the total gross receipts on a presumptive basis.

Many businesses and freelancers choose this scheme because it allows them to file taxes without maintaining detailed books of accounts or submitting financial statements and bills

Eligibility Criteria For Presumptive Taxation Scheme&nbsp;

The two major classifications under presumptive taxation are businesses and individual professionals. Any business with Rs. 2 crores or less as annual turnover and any professional with Rs. 50 lakhs or less as annual earnings can opt for the scheme. Although businesses have been defined as legal entities, individual professionals are further categorized into two sections:&nbsp;

Here are the eligible legal entities under Section 44AD and individual professionals under Section 44ADA of the Income Tax Act: 



If you are not engaged in professional activities other than those mentioned above, you will need to adhere to the rules specified under Sections 44AD and 44ADA for non-specified professions.&nbsp;

The following businesses and taxpayers are excluded from opting for the Presumptive Taxation Scheme:&nbsp;

Calculation of Presumptive Income for Freelancers Under Section 44ADA

As we’ve seen, if you are a professional, freelancer, or consultant, you can pay income tax on only 50% of your gross annual income by utilising the Presumptive Taxation Scheme under <a href="https://www.skydo.com/blog/how-to-file-taxes-under-44ada">Section 44ADA</a> of the Income Tax Act.&nbsp;

The calculation of presumptive income under the section is simple. You only have to determine 50% of your gross total earnings and pay tax on the determined amount by ITR. Here is a detailed example:&nbsp;

Suppose you are a freelancer and have earned Rs. 40 lakhs in FY 2022-23. As your annual earnings are lower than Rs. 50 lakhs, you are eligible to opt for the Presumptive Taxation Scheme. Opting for the Presumptive Taxation Scheme will allow you to pay a tax on 50% of the gross earnings, i.e., on Rs 20 lakhs only.&nbsp;

However, without the presumptive taxation scheme, the taxable income would be Rs. 30 lakhs due to the maximum allowable work-related deductions (including travel expenses, meeting expenses, and communication expenses) of Rs. 10 lakh, resulting in higher taxes.

Individuals who opt for the Presumptive Taxation Scheme are allowed all tax deductions under Sections 30-38 and <a href="https://taxguru.in/income-tax/section-44ada-presumptive-taxation-professionals.html">Sections 80C to 80U of the Income Tax Act. </a>However, they are barred from claiming any further business expenses from their taxable income.&nbsp;

Advance Tax under the Presumptive Taxation Scheme&nbsp;

If you opt for the Presumptive Taxation Scheme, you are liable to pay the entire advance tax amount before 15 March of the financial year. Advance tax refers to the payment of income tax in instalments throughout the financial year rather than as a lump sum at the end of the year.

If you fail to pay the advance tax amount and your tax liability exceeds Rs. 10,000, interest under <a href="https://learn.quicko.com/section-44ad#5-section-44ad-of-income-tax-5-year-rule">Section 234C</a> will be levied.&nbsp;

Presumptive Taxation For International Payment

If you are a freelancer or a professional and opting for this taxation scheme under Section 44ADA of the Income Tax Act, you must add <a href="https://www.skydo.com/blog/track-your-international-payment-journey-from-skydo-to-your-bank?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">international earnings</a> to your total income while computing your presumptive income. Most international clients deduct TDS before sending payments. If deducted, you can claim a refund for the TDS amount if you fall under the tax liability.&nbsp;

Even if they haven’t deducted <a href="https://www.skydo.com/blog/tds-on-international-payments">TDS</a>, you must add the amount received through international channels to your total income and pay the applicable tax.&nbsp;

How to Opt for the Presumptive Taxation Scheme&nbsp;

Here is the detailed process if you are looking to opt for the Presumptive Taxation Scheme: 



To file taxes under the Presumptive Taxation Scheme, use Form ITR-4. If you have income from capital gains, file taxes using Form ITR-3. Mention the Business and Profession Codes based on your profession. The deadline to file ITR for FY 2023-24 (AY 2024-25) is July 31, 2024.&nbsp;

It is important to link your Aadhaar and PAN to file Form ITR-4. Once linked, <a href="https://www.incometax.gov.in/iec/foportal/help/e-filing-itr4-form-sugam-faq">you will need documents</a> such as Form 16, 16A, 26AS, and AIS, as well as bank statements, donation receipts, housing loan interest certificates, rental agreements, rent receipts, and investment premium payment receipts.&nbsp;

If you choose the Presumptive Taxation Scheme, you must stick with it for the next five years. If you don't, you won't be able to choose this scheme for the next five years. For example, if you file under this scheme for AY 2019-20 and AY 2020-21 but don't opt for it for AY 2021-22, you can't choose the PTS for the next five AYs, i.e., AY 2022-23 to AY 2026-27.&nbsp;

Freelancers receive payments from multiple sources, making it difficult for them to determine their total income and pay taxes based on the applicable tax rates. The Presumptive Taxation Scheme provides a simple way for professionals such as freelancers to pay taxes on 50% of their gross income and avoid paying higher taxes. The scheme makes taxation compliance simpler for freelancers and ensures they comply with the tax laws even if they receive international payments.&nbsp;

If you are a freelancer receiving international payments, <a href="https://www.skydo.com/">Skydo</a> is a one-stop solution that can help you create a virtual currency account and easily comply with all the FEMA and taxation rules. <a href="https://www.skydo.com/blog/why-skydo-is-your-trusted-international-payment-partner?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Visit Skydo today</a> to streamline your foreign currency transactions.

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Presumptive Taxation Scheme

In India, the implementation of the <a href="https://www.skydo.com/blog/how-to-file-gst-monthly-and-quarterly-for-freelancers?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Goods and Services Tax (GST)</a> in July 2017 marked a significant shift in the country's tax regime. While its impact on domestic transactions is well-documented, its implications for foreign payments are equally profound yet often overlooked.

If you have a business or provide services to foreign clients, it is important to understand how GST can affect foreign remittances.

What is Goods and Services Tax in India? 

In India, the Goods and Services Tax (GST) is a crucial revenue source for the central and state governments. GST is levied on the supply of goods and services, ensuring a broad tax base. The revenue generated from GST contributes significantly to government finances, funding various developmental initiatives and public services across the country.

Goods and Services Tax (GST) is structured as follows in India:

<a href="https://writefreelance.in/gst-freelancers-india/#:~:text=Do%20I%20charge%20GST%20to,no%20liability%20to%20charge%20GST.">No, the Goods and Services Tax (GST) does not apply to a foreign client</a> if you receive foreign remittance for your services in a foreign currency and not INR.&nbsp;

For example, suppose you are a freelancer with multiple foreign clients in different countries. They pay you in their native foreign currency, deposited into your Indian <a href="https://www.skydo.com/blog/set-up-your-freelance-international-bank-account-in-just-5-minutes?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">bank account</a> in INR after conversion. In that case, you have no liability to pay GST on the received amount.&nbsp;

As per the ‘Export of Services’ head defined under Section 2 (6) of the IGST Act, 2017, the following conditions must be fulfilled for an Indian exporter/service provider not to be liable to pay GST when dealing with foreign clients.

However, you must request and receive a foreign remittance certificate from your bank or your digital currency platform for foreign remittance for compliance and tax purposes.&nbsp;

Although a foreign payment may not come with the liability to pay GST, fees related to foreign remittances may be subject to GST, depending on the nature of the service provided.&nbsp;

GST Implications For Different Scenarios&nbsp;

<a href="https://www.skydo.com/blog/time-taken-for-inward-remittances?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Inward remittances</a> refer to funds transferred or sent into a country from abroad.&nbsp;

No GST applies for entities in India receiving inward foreign remittances in foreign currencies.&nbsp;

For example, if you are a freelancer and a client has paid you $1,200, you are not liable to pay any GST on the amount. This arrangement benefits businesses and service providers as there's no additional GST burden on transactions with foreign clients.

2. Compliance Handling &amp; Certifications (FIRC, BRC)

<a href="https://www.skydo.com/blog/importance-of-fira-for-freelancers?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">FIRC stands for Foreign Inward Remittance Certificate</a>, while BRC stands for Bank Remittance Certificate. Banks in India issue both certificates to provide proof of foreign currency remittance. GST applies to compliance handling and certification services.

These forex transactions related to foreign currency conversion attract 18% GST on forex, called GST on currency exchange. If the forex transactions are between banks and designated authorised dealers, there is no liability to pay GST. However, the bank may charge you 18% GST as the service of conversion is still taxable.

While GST on international transactions generally does not apply to the inward remittance amount itself, it may impact related services such as compliance handling, certifications, and currency conversion fees.

It is important for businesses and service providers such as freelancers to deeply understand the implications of tax on currency exchange and GST on foreign payments to streamline their billing process. It also ensures compliance with tax regulations and minimises any potential financial implications for themselves and their foreign clients.



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According to a <a href="https://www.fiverr.com/news/new-year-survey">survey by Fiverr</a>, 66% of respondents plan to join a freelance platform for better flexibility, prevent job insecurity and gain financial freedom.&nbsp;

The survey also reveals that the top three goals of freelancers in 2024 were earning, saving and investing. If you also have these goals and want to switch to full-time freelancing, you should consider several factors, especially tax benefits.

This blog helps you understand the difference between self-employment tax vs. payroll tax in the U.S. with tips on how to maximise tax savings as an employee or independent contractor.

Here are some of the tax benefits that U.S. employees enjoy.

An employer deducts or withholds this amount from your salary and pays to the government on your behalf. It reduces your liability to calculate payable tax based on your salaried income.

Moreover, employees can seek government benefits such as social security income, unemployment insurance, disability insurance and medicare benefits with payroll tax deductions.

Withholding taxes also serves as income proof, making it easier to avail loans and clear other relevant applications.

2. Social Security and Medicare Contributions

All employees in the U.S. have to pay Social Security tax and Medicare tax. However, this tax isn’t paid directly to the government.&nbsp;

Employers deduct these taxes from the wages and deposit them with the government on behalf of the employees as per the Federal Insurance Contributions Act (FICA). Therefore, it reduces the burden on employees.&nbsp;

Moreover, the employers also make FICA contributions of 6.2% of each employee’s salary to Social Security tax and 1.45% to Medicare tax.

U.S. employees also get access to health insurance with minimum essential coverage. Moreover, many employers offer other health insurance benefits such as disability cover, vision and dental support.

Low-to-moderate-income employees can avail of the Earned Income Tax Credit (EITC). This tax benefit lowers the tax liability of individuals.

Some amount is credited to the taxpayer's account, depending upon their marital status and number of children. Therefore, the Earned Income Tax Credit maximises tax savings. You can check the eligibility, application requirements and credit limits <a href="https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income-and-earned-income-tax-credit-eitc-tables">here</a>.

Additionally, during COVID-19, the U.S. government introduced the <a href="https://www.uschamber.com/sites/default/files/uscc_covid19_employee-retention-tax-credit.pdf">Employee Retention Tax Credit</a> (ERTC) for employees working at organisations shut down during the pandemic.

Full-time employees can avail the benefits provided under the Fair Labor Standards Act (FLSA). It offers fair standards for minimum wages, overtime, leaves and holidays, among others. However, it does not protect independent contractors’ rights.

For example, as an employee, you have fixed working hours, approximately 40 hours per month. If you must take up any work requiring long working hours, you will get adequate overtime compensation. However, as an independent contractor, there is no fixed standard for overtime if you spend extra hours on client projects.

Employees are also eligible for stock option schemes. Thus, employees get higher financial benefits as the company grows. However, Independent contractors do not inherit stock option schemes.

Some additional benefits available to employees include the following.

Some significant tax benefits available to independent contractors or self-employed individuals include the following.

Work flexibility and significantly growing earnings are the two key benefits of working as an independent contractor. You can show several expenses as business expenses and seek deductions to reduce your taxable income.

Moreover, sole proprietorships can also avail of the <a href="https://www.irs.gov/newsroom/qualified-business-income-deduction">Qualified Business Income (QBI) Deduction</a> as per Section 199A. This scheme allows Independent contractors to reduce their QBI by up to 20%. However, there are several limitations to availing QBI according to business type and other factors.

Additionally, if the business expense of independent contractors is higher than their business income, they can deduct the net loss from their gross income.

Independent contractors can show most of their expenses as business expenses and deduct them from the total income to maximise tax savings. Some of the standard business deductions you can claim in the U.S. are listed below.

The <a href="https://www.hhs.gov/healthcare/about-the-aca/index.html">Affordable Care Act</a> allows access to affordable healthcare benefits for independent contractors. You may also be eligible for tax credits if you purchase the insurance from the Health Insurance Marketplace.

Independent contractors or sole proprietors in the U.S. have to pay two types of taxes: the income tax and <a href="https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes">self-employment tax</a> which comprises Social Security and Medicare taxes.&nbsp;

While finalising their self-employment tax consideration, independent contractors can also deduct the amount which would have otherwise been paid by an employer and adjust the gross income accordingly.

Here are some major differences between tax benefits for employees and independent contractors, including self-employment tax vs. payroll tax.

W-2 is a form employers provide to their employees which comprises information related to federal and state taxable income and social security and medicare income. It helps employees file their income tax return and avail credits or refunds, if any.

If you are an independent contractor, you must take a&nbsp; Form 1099-NEC from your clients to file the annual tax return. It tells how much payment a business has made to you in the previous tax year.

An employer deducts payroll tax from employees’ wages. The tax rate is usually 15.3%, from which employer and employee pay 7.65% each.

Independent contractors pay self-employment tax on 92.35% of the net earnings. Like payroll tax, the self-employment tax is 15.3%, which independent contractors must pay completely.

Moreover, the initial $168,600 of the net earnings will be considered for payment of social security tax in 2024.

Independent contractors can use deductions in the form of business expenses to reduce taxable income. On the contrary, employees who earn low-to-moderate income can reduce their tax liability by availing Earned Income Tax Credit benefit.

What is the Best Form of Employment Based on Tax Implications?

Employees have a structured work arrangement but a fixed income. They cannot control their working hours and workload. However, independent contractors can decide their workload and working hours.&nbsp;

They get unlimited leaves and have better work flexibility. They can also maximise their savings by taking on more clients. However, employees get limited overtime compensation.

There are several tax benefits for employees and independent contractors. Employees have more convenient tax calculations and filing because most of the work is done by the employers. However, that also means limited earnings.

Independent contractors, on the other hand, have to calculate and file taxes by themselves, but there is no cap on earnings.

Employees have access to health benefits, and the employer pays half the payroll taxes. Even though independent contractors lack such benefits, they have better work autonomy and can compensate for additional expenses by <a href="https://www.skydo.com/blog/freelancer-earning-potential-in-2024">increasing their freelance earnings.</a>

Employees have a steady income and get retirement benefits. However, independent contractors have variable earnings and can <a href="https://www.skydo.com/blog/personal-finance-tips-and-tricks-for-freelancers">plan their retirement</a> according to their savings.

Practical Tips for Maximising Tax Benefits

Here are a few tips to reduce taxable income and maximise tax savings.

1. Invest in Pre-Tax Retirement Savings&nbsp;

If your annual income is $70,000, you invest $2,100 in pre-tax savings. The net taxable income will be $67,900.

Employees can invest in pre-tax savings through 401(k) or 407(b). Ensure that you and your employer make the same amount of contribution to the retirement fund to maximise your savings.

However, independent contractors who run a business alone or with their spouse, without any employee, can benefit from a solo 401(k) or self-employed 401(k). Independent contractors can contribute both as an employer and an employee. The total contribution limit for 2024 is 25% of the gross income or $69,000 for 2024.

2. Take Advantage of Employer-Sponsored Benefits or Self-Employment Deductions

The easiest way to maximise your tax savings as an employee is to avail employee benefits, including paid sick, family, personal, or vacation leaves, health insurance and retirement benefits.

Independent contractors can reduce tax liability by deducting the maximum possible business expenses from their gross income.

Employees and independent contractors can reduce their taxable income by making <a href="https://www.irs.gov/taxtopics/tc506">charitable donations</a> in the form of money or goods to tax-exempted organisations. However, you need to itemise the deduction by filing Form 1040.

Both employee and independent contractor roles have unique tax benefits. Therefore, you must learn the tax liabilities in both cases to make the best decision for your career. It is always recommended to consult a tax professional to understand tax deductions, liabilities and other compliances according to the nature of your work.

If you are an independent contractor or are planning to pivot to freelancing, <a href="https://www.skydo.com/">Join Skydo</a> today to streamline your invoicing and payment processes and maximise your freelance earnings!

Q1. What deductions can independent contractors claim to maximise tax savings?

Ans. Independent contractors can deduct all ordinary business expenses from their gross income. These expenses include home office, Internet and phone bills, travel, vehicle use, business insurance and education.

Q2. What is the key difference between self-employment tax vs payroll tax?

Ans. The self-employment tax is paid by independent contractors, freelancers, or sole proprietors. It includes Social Security tax and Medicare tax. An employer deducts payroll or withholding taxes from the employees’ wages.

Q3. What is the difference between self-employment tax and income tax?

Ans. Independent contractors or freelancers and employees have to pay income tax. However, independent contractors must also pay self-employment tax, including Social Security tax and Medicare tax.

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GST applies to everything you purchase, from utilities to professional services. However, if you provide services abroad and receive international transfers and remittances, does GST apply to them? For instance, if you provide IT services to the U.S. from India, should you pay GST on <a href="https://www.skydo.com/blog/real-time-tracking-of-international-payments?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">foreign exchange</a>? If yes, how should you go about it?&nbsp;

This blog explains the GST’s applicability to various foreign exchange payments and how to manage such transactions.&nbsp;

Under the GST regime, the export of goods and services is considered a zero-rated supply since the consumption of goods or services happens outside India. Therefore, GST isn’t applicable as a separate charge over <a href="https://www.skydo.com/blog/time-taken-for-inward-remittances?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">inward remittances</a> to India.

For instance, if you are an IT services exporter dealing with foreign clients, you're exempt from paying additional GST on the money you receive as payments from your clients abroad.

Some <a href="https://www.skydo.com/blog/how-you-can-streamline-international-transactions-for-your-business?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">online platforms</a> may charge an 18% transaction fee for certain products during international money transfers. Importantly, this fee doesn't mean there's an additional GST on the foreign remittance transaction itself.

2. Compliance Handling and Certifications (FIRC &amp; BRC)&nbsp;

GST applies to services relating to compliance handling and issuing <a href="https://www.skydo.com/blog/all-you-need-to-know-about-FIRC-a-complete-guide?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">FIRC</a> and <a href="https://www.skydo.com/blog/what-is-e-BRC?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">BRC</a> in India.

What makes this situation different is the "reverse charge mechanism." This is where the responsibility of paying GST shifts from the service provider to the foreign clients.&nbsp;

Thus, foreign clients are now directly responsible for remitting GST to the Indian government, relieving the service provider of this financial obligation.

You don’t need to charge GST on international transactions separately on the invoices whenever you provide services to foreign clients. Your clients directly pay GST to the Indian government on the foreign exchange conversion.

This simplified approach streamlines the <a href="https://www.skydo.com/blog/should-i-invoice-in-inr-or-foreign-currency?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">billing process</a> for both the service provider and international clients.

If you receive $1000 for exporting services and convert it into Indian Rupees, 18% GST would apply to the foreign currency conversion transaction.

The value of service in purchases/sales of foreign currency is determined as per the table below, upon which a GST of 18% is applicable.

Transactions amongst banks or authorized dealers are exempt under GST regulations.

What Next: Managing Foreign Exchange Transactions

When engaging in <a href="https://www.skydo.com/blog/how-much-forex-fees-do-you-pay-on-global-transactions?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">forex</a> transactions, opting for authorised channels to stay compliant with regulations is advisable. Make your financial life easier by creating <a href="https://www.skydo.com/blog/gst-bill-format-what-it-includes?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">invoices</a> that separate taxable and non-taxable items.

If you're searching for a reliable payment partner to guide you through complexities, <a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Skydo's</a> automated and compliant solutions can assist.&nbsp;

Visit <a href="https://www.skydo.com/blog/gst-requirements-international-service-sales?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">the blog</a> to learn more about the nuances of handling GST.

Q1. What do “goods” and “services” mean under GST?

Ans. As per Section 2(52), CGST Act, 2017, “Goods” mean any kind of movable property other than money and securities. It includes actionable claims, growing crops, grass, and things attached to or forming part of the land, which are agreed to be served before supply or under a contract of supply.&nbsp;

As per Section 2(102), CGST Act, 2017, “Services” mean anything other than goods, money, and securities. It includes activities relating to the use of money or its conversion by cash or any other mode from one form, currency, or denomination to another form, currency, or denomination for which a separate consideration is charged.

Q2. Is GST applicable on international transactions?

Ans. GST does not apply to international transactions in India. GST is designed for goods and services consumed within the country. International transactions involving the cross-border movement of money are typically exempt from GST.

Q3. What is the meaning of zero-rated supply?

Ans. According to Section 16, IGST Act, zero-rated supply means any of the following supplies of goods and services.

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Freelancing offers unparalleled freedom and opportunities, but it also comes with the responsibility of <a href="https://www.skydo.com/blog/personal-finance-tips-and-tricks-for-freelancers?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">managing your finances</a> and filing for taxes every year. As a freelancer, it is vital to file the ITR and comply with tax laws.&nbsp;

This blog will talk about the tax liabilities for freelancers, the tax rates, the GST and TDS compliance, and the detailed process of filing ITR correctly.

What Is Freelancing According to Income Tax Regulations?

As per the Income Tax Department, earnings from freelancing are treated as earnings from businesses and professions when filing ITR for freelancers. The Income Tax Department has categorised earning income through physical and mental abilities under the ’profit and gains from business and profession’ when considering the tax liability.&nbsp;

Freelancers in India must file taxes under the purview of Income Tax and Goods &amp; Services Tax). The GST implications require freelancers who earn more than Rs 20 lakh (for intrastate; Rs 10 lakh for hill and northeastern states) to register under GST. In India, a GST rate of 18% is applicable for most freelancing services.&nbsp;

Rates of Income Tax Applied to Freelancers

Here is a <a href="https://cleartax.in/s/how-to-file-itr-for-freelancers">detailed table</a> to understand applicable <a href="https://www.skydo.com/blog/tax-slabs-2023-24?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">freelance taxes in India for freelancers</a> under the age of 60:

If the freelancer earns more than Rs 1 crore as gross annual income, the freelancer is required to conduct a tax audit. Furthermore, a Tax Deducted at Source (TDS) of 10% is applicable for any amount exceeding Rs 30,000 paid by the freelancer to any professional.&nbsp;

The freelancer can claim <a href="https://cleartax.in/s/how-to-file-itr-for-freelancers">tax deductions</a> on freelance income tax liability depending on the chosen tax regime. Freelancers can also utilise the Presumptive Taxation Scheme under <a href="https://www.skydo.com/blog/how-to-file-taxes-under-44ada?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Section 44ADA</a> of the Income Tax Act 1961. The Presumptive Taxation Scheme under Section 44ADA allows freelancers to pay freelancing income tax on only half of their gross annual income if the total annual income is less than Rs 50 lakhs.

Here are the tax deductions that freelancers can claim while filing ITR for freelancers under Section 80c to 80U.

The obligation to file ITR lies personally on the freelancers, and they can file ITR for freelancers by visiting the <a href="https://eportal.incometax.gov.in/iec/foservices/#/login">Income Tax Portal</a>. However, before filing the income tax for freelancers, it is important to choose the right ITR form.&nbsp;

If you choose the Presumptive Taxation Scheme under Section 44ADA, you need to file an ITR for freelancers using ITR-4. In case you are not opting for the Presumptive Taxation Scheme, you must file your ITR using ITR-3 under the business or profession section.&nbsp;

Here are the steps to file ITR for freelancers in India:&nbsp;

Freelancers can fill out ITR for freelancers using the offline or online method. For offline filling, you can download the form, fill it and upload the XML file to the IT portal. Alternatively, freelancers can fill out the ITR form online and submit the relevant proofs after digital verification of the ITR.&nbsp;

Here are some best practices to follow to file ITR for freelancers correctly:&nbsp;

Filing Income Tax Returns (ITR) as a freelancer in India is a crucial responsibility that demands organisation, diligence, and understanding of the tax regulations. By understanding the tax implications, tax rates, the process of filing ITR, and the best practices, you can simplify the ITR filing process and adhere to all the tax laws.&nbsp;

Maintaining meticulous financial records, regularly updating income and expenses, seeking professional advice when needed, and avoiding common filing mistakes are fundamental steps to ensure a smooth tax filing experience.&nbsp;

Furthermore, it is always wise to consult a tax professional if you find the process complex to ensure the highest tax-saving and ideal compliance.&nbsp;

Q1. Is it necessary for freelancers to pay Advance Tax?

Ans: <a href="https://tax2win.in/guide/income-tax-for-freelancers">If a freelancer’s</a> total tax liability exceeds Rs 10,000, then the freelancer must pay advance tax every quarter of the financial year. It must be paid before the end of the financial year in four instalments: 15th June, 15th September, 15th December, and 15th March.&nbsp;

Q2. Can freelancers revise their ITR after filing?

Ans: Any Indian taxpayer can review their ITR by filing a revised ITR. It must be filed within three months of assessment year completion or completion of the assessment of the <a href="https://www.skydo.com/blog/how-to-claim-input-tax-credit-refund-in-india?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">ITR return</a>, whichever comes first.&nbsp;

Q3. What is the deadline for freelancers to file ITR?

Ans: If your annual turnover is less than 1 crore, you must file the ITR before 31st July. In case of annual turnover exceeding Rs 1 crore, the deadline to file ITR for freelancers is 31st September.&nbsp;

Q4. Can freelancers claim deductions for home office expenses?

Ans: Yes, <a href="https://www.policybazaar.com/income-tax/income-tax-filing-for-freelancers/">freelancers can claim a tax deduction</a> for home office expenses such as printer purchases, internet bills, office supplies, and conveyance expenses.&nbsp;

How to File ITR as a Freelancer in 2024 th

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India taxes individuals based on a system of income slabs. Different tax rates are assigned to different ranges of income.&nbsp;

Understanding tax slabs is crucial for several reasons.

As a person earns more, the tax liability also increases, creating a fair and progressive tax system in the country. To achieve this, the government regularly updates and announces changes to tax slabs in the Union Budget.

The income tax slabs differ between the old and new tax regimes. Let's explore the specific slab rates applicable to Individuals for FY 2022-23 (AY 2023-24) and FY 2023-24 (AY 2024-25).

Income Tax Slab Rates For FY 2023-24 (AY 2024-25)&nbsp;

Rates of the old tax regime slabs are categorized into three groups:

The new tax regime applies uniform tax rates to all individuals, eliminating the age-based distinctions in the old system. The new tax regime slabs 2023-24 are outlined below.

Applicability of Surcharge for FY 2023-24 (AY 2024-25)

The income tax <a href="https://incometaxindia.gov.in/charts%20%20tables/tax%20rates.htm">surcharge</a> is an extra fee imposed on top of the <a href="https://www.skydo.com/blog/how-to-file-taxes-under-44ada?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">regular income tax</a>. An additional tax is applied to individuals with higher income earnings in a specific financial year. Let’s look at the applicable surcharge rate under the Old and New tax regime.

However, 25% or 37% surcharge rates will not apply to income under the following sections.

Consequently, the highest surcharge rate on the tax payable for such incomes will be 15%.

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