NOTE: The contents of this article is relevant to Indian Freelancers.
Freelancing is fondly called “extra income” for reasons galore. Some want their hobby to pay for itself, while for someone else, it is about “test the waters” before taking the big-decision. But, that is beside the point. The point is – Income From Freelancing Is Indeed An INCOME, however small. And, “Any income derived by way of freelancing job is taxable under the provisions of Income Tax Act. 1961 as “Profits and Gains from Business / Profession”.
Most freelancers are not aware of this particular law (Income Tax Act 1961), which is also because they don’t pay their Income Tax. But, ignorance of law is not acceptable and the said freelancer could face legal punishment for not paying Income Tax.
As a freelancer, not all of us have the affordability of hiring a Charted Accountant, not to mention the fact that, we freelancers are wary of disclosing our income sources to someone else, unless the person is family, or, a very very trusted friend. Eventually, that leaves us to ourselves to do our taxes and do the paper work.
But, every finance related website (Government or otherwise) is so heavily loaded with jargons, that, for a person from non-finance background, it gets increasingly difficult to comprehend and do his tax calculations on his own. As a freelancer myself, I completely understand and sympathise with the fellow freelancer.
Here is a short synopsis from the ebook on how Indian freelancers can go about handling their income tax computations, until the time they are ready to hire the services of a Charted Accountant:
- For the Assessment year 2013 – 2014, If you earn more than 2,50,000- per year , you are liable to pay tax
- Typical freelancers handle multiple clients and usemultiple payment gateways to procure income (in other words, payment from clients for the services / products rendered). It is essential to segregate income transactions from bank statements from personal transactions to avoid calculation mishaps.
- Business related expenditure such as paying for your printer cartridge, new PC, Domain hosting charges etc are deductible from the Total Income. The Income tax is calculated on the resulting amount.
- Depreciation of assets when claimed, decreases the final tax payable to considerable extent.
- In addition to business related expenses and depreciation of assets, certain specific set of investments are allowed tax deductions under 80C. (eg, PPF, Housing Loan etc)
Taxable Income = NET Income – Total Deductions
Use this chart to know % of tax payable on your taxable income
Govt.Of.India allows its citizens to pay tax online via their website.
This makes the entire Income tax computation and payment easy and convenient, without have to wait in line at the banks or Income Tax Office.
Every earning citizen is liable to pay tax to the government to contribute for the growth of his country. But, some of us are at loss of correct information in this matter. This ebook is meant to be an educative handbook for freelancers from India, so that, they can do their own taxes, until the time they can afford a CA.