September 21, 2023

Income Tax Filing for Freelancer

As a freelancer, the organization generally does not ask the person to come to the office, and he/she can work from any place convenient to the individual.

As per income tax rules, any income generated where the person exhibits his/her intellectual or manual skills is regarded as Profits from business or profession.

The Deductions That Can Be Considered As Expenses

Freelancers are allowed to deduct the expenses that took place to complete the work for the income. These expenses can be anything, from furniture to cab fares to visiting clients on-site. These expenses should be associated to the job done.

The conditions required to be fulfilled to claim the deduction –

  • The expenses should be spent completely and particularly for work purpose
  • The expenses should take place during the financial year for which the deduction is to be claimed
  • The payment should not lie under the category of personal expenditure or capital expenditure of freelancer
  • The cost should not be for any reason that is prohibited by law
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Some of the categories that are allowed deduction are:-

  • Property rent
  • Cost related to repairs done to renovate workplace
  • The cost related with the replacement/repair of equipment such as laptops, printer, etc.
  • Reduction on fixed assets
  • Expenses towards office supplies, electricity expenses, telephone bills, conveyance expenses, etc.
  • To work such as buying a printer, your monthly telephone bills, office supplies, internet bills, or conveyance expenses.
  • Travel Expenses
  • Meal, entertainment, or hospitality expenses
  • Insurance for business property and any other asset
  • Purchase of domain/maintenance activity and the likes

What Happens if The Expenses Are Common To Professional And Personal Purpose?

Often there are times where the costs done are common to both professional and personal purposes. In such case, only a certain amount is allowed for deduction and not the full amount.

For example, when you use your mobile phone for both personal and business calls, then only the calls made for your freelance work will be allowed for deduction.

Presumptive Tax Calculation

As a freelancer, you can pay tax on half of the yearly gross income. This can be done using the Presumptive Taxation Scheme that is described under section 44ADA of the Income Tax Act. The only condition here is that the annual income should be below 50 lakh INR.

Let us now see an example – 

Amit is a freelancer in finance who earned 40 lakh INR in year 2019. 40 lakh INR is a great amount of money that could attract large taxation. Thus, using the advantage of presumptive tax, the taxable income of Amit becomes –

Taxable income      = Rs 40 lakh / 2

  = Rs 20 lakh

Given the tax bracket would 30%, nearly Rs 3-4 Lakhs can be secured under the presumptive tax method.

Which ITR To File?

As a freelancer, either ITR 3 or ITR 4 is applicable for you since your income will be regarded as income from business or profession. Professionals who are choosing the presumptive taxation scheme can announce 50 % of their gross receipts as their income by filing ITR-4.


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