Everything You Need To Know About Income Tax Return For Freelancers

Being a freelancer has its share of perks. Firstly, you get to be your own boss and don’t need to follow the daily 9-to-5 grind. A freelancer’s life is filled with creative freedom and flexibility. However, it comes at a price. As a freelancer, you don’t have the liberty of a fixed, regular monthly income from an organisation, and you need to walk the extra mile to maintain your regular income.

Irrespective of whether you are a freelancing journalist, photographer, writer or a graphic designer, the common parameter that you need to give due importance to is filing your tax return. So, here’s everything a freelancer must know while filing his or her Income Tax Return.

Additional Reading: 5 Income Tax Changes For The Financial Year 2018-19

• Calculate your freelance income

Start by calculating all your freelance income for the financial year. Confused? Let’s say you want to calculate your ITR for 2018-2019. Start from 1st April, 2018 and stop at 31st March, 2019.

This will take into account an entire assessment year and should include the sum of money you’ve received for your work in the financial year.

Bear in mind that your freelancing income should only include your earnings from your freelance work. Any other income you’ve earned such as a rental income or interest from a Savings Account should be added as a part of other income heads.

Additional Reading: Make Sure You Complete Your ITR Process With These Steps

• Deduct your freelance expenses

Here’s good news! All expenses related to your freelance work that you’ve borne in the financial year can be claimed as deductions. Awesome, right?

These expenses may include your electricity bills, phone bills, and any travel expenses that you incurred for work purposes.

For instance, if you work from an office or say a co-working space, any rentals paid for the work-space, expenses towards stationery and office material, among other expenses, will fall under this category. 

Additional Reading: 7 New Things The Income Tax Department Wants To Know About You

• Don’t forget depreciation

Are you confused about what depreciation is? Hey, don’t panic. Depreciation is nothing but a method of distributing the cost of a physical/material asset throughout its useful life. This is used to account for a decrease in the value of the asset over time due to wear and tear.

This is a common practice in businesses that make use of long-term assets, usually directed at tax and accounting considerations.

Now, your day-to-day work may require you to purchase assets like mobiles, cameras, computers, laptops or other equipment. As such equipment will generally benefit you for more than a year, you can easily avail the expenses for more than a year.

The total expense you incur on purchasing your asset can, therefore, be divided over the lifetime of the asset instead of a single, one-time deduction. Keep in mind that if you want to claim depreciation on your assets, you will have to show proof of their purchase.

Additional Reading: How To Correct Mistakes In Your Income Tax Return (ITR)

• Compute your total income

Once you’ve completed the steps mentioned above, take all the calculations made above into consideration and derive your final income. This will include your freelance income plus income from other sources minus the expenses and depreciation of assets for work.

• Avail all available deductions

As a freelancer, you can avail all tax deductions available under Section 80 of the Income Tax Act, 1961 as available to salaried as well as self-employed individuals.

Additional Reading: Your Income Tax Exemption Guide For The Financial Year 2018-19

In order to arrive at your final income, you’ll need to maintain a record of your earnings and expenses. We know it can get quite difficult but understand this, it’s a necessary step towards calculating the flow of your money.

You can either opt for the conventional pen and paper record or go a step ahead and maintain a digital record.

Once you’re done calculating your final income, it doesn’t end here. Read on to know more.

Additional Reading: File ITR And Submit ITR-V Online Through Your Bank Account

TDS for freelancers

Some of your clients may deduct tax deducted at source (TDS) on payments made to you for your work. You need to get the details of all such TDS deductions by submitting the Form 16A. You can request for a credit of the TDS amount if your final tax dues are below the threshold taxable limit.

Filing your Income Tax Return

Many freelancers often wonder which ITR form is right for them to file their tax returns. Freelancers need the ITR 4/4S form. Keep all the receipts of your expenses and payments handy, as they may be needed if the Income Tax department seeks further information.

Income Tax Slabs:

General tax payers (including women) need not pay any Income Tax if their final computed income after deductions is below Rs. 2.5 lakhs. The tax rate is 5% for income between Rs. 2.5 lakhs to Rs. 5 lakhs, 20% for income between Rs. 5 lakhs and Rs. 10 lakhs, and 30% for all income above Rs. 10 lakhs.

Pro tip: Check out the Income Tax Slabs revised after the 2019 interim budget.

Tax obligations as a freelancer are quite simple provided you keep a regular receipt of all the income, expenditure, investments and other outflow and inflow of funds.

As a freelancer, it’s twice as important to have investment and contingency funds in place. Also, you may want to get a Home Loan, Car Loan, or a Personal Loan without tapping into your monthly earnings. In that case, if you’re looking for any kind of financial product, we’ll have you covered.