As a freelancer or consultant, your income is classified as "income from business or profession" under the Indian tax system. This means you are considered self-employed and are required to report your income and pay taxes accordingly.
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Obligation to File Income Tax Return
If your total income from freelance work or consulting services exceeds the threshold specified by the Income Tax Department (currently Rs. 2.5 lakh for individuals below 60 years of age), you are required to file an income tax return. Even if your income is below the threshold, it is advisable to file a return voluntarily to maintain a record of your income and comply with tax laws.
Maintaining Proper Records
To accurately report your freelance income and claim any eligible deductions, it is crucial to maintain detailed records of your earnings and expenses. Keep track of all your invoices, receipts, and business-related expenses such as equipment purchases, travel expenses, professional fees, and marketing costs.
Calculation of Taxable Income
As a freelancer, your taxable income is calculated by deducting allowable business expenses from your gross income. You can claim deductions for expenses directly related to your freelance work, such as office supplies, software subscriptions, internet charges, and professional development courses.
Advance Tax Payments
Unlike salaried individuals whose taxes are deducted at source (TDS), as a freelancer, you are responsible for paying advance taxes. The Income Tax Department requires you to estimate your income and pay taxes in installments throughout the financial year. Failure to pay advance tax may result in interest and penalties.
GST Registration
If your annual turnover from freelance work or consulting services exceeds the threshold specified by the Goods and Services Tax (GST) Act (currently Rs. 20 lakh for service providers), you are required to register for GST and charge GST on your invoices. GST registration enables you to avail of input tax credit for business-related expenses.
Quarterly GST Returns
Once registered for GST, you will need to file quarterly GST returns, providing details of your sales and purchases during the quarter. It is important to maintain accurate records and comply with GST regulations to avoid penalties.
Being aware of your tax obligations, maintaining proper records, and staying updated with the applicable tax laws and regulations will help ensure a smooth and compliant tax filing process.
Look up more articles here for a smooth first time tax-filing process. All the best!
