Income tax on amount earned through freelance work

Question

Hi

I've two questions relating to income tax payable on income generated through freelance work. I did search for relevant posts but it directed me to a pdf which was so full of technical jargon (as most official documents are) that I couldn't make anything of it. Therefore, I would request you to answer my questions:

In the FY 2011-12, for a few months, that I wasn't working I freelanced for a publishing services company. My total earnings from this work was ~65,000 INR, which was paid to me through monthly cheques. The company deducted ~5% from the total invoice raised every month. My question is having paid this tax - do i still need to pay income tax on this amount. If I need to then how do I calculate the income tax on this amount and which form do i need to submit? [My gross income from my regular job exceeded the 190,000 limit and I have paid income tax in excess of 2527.]

I am thinking of joining an overseas company as a freelancer, and they pay their employees through the PayPal account. My question is would joining an overseas client and getting paid in dollars be any different from joining an Indian firm? Would i need to pay taxes if the total earnings doesn't exceed the 200,000 limit?

Thanks

Pankaj Batra · Answer

First, I am not sure how company, for which you worked as a freelancer, deducted only 5% tax. As per govt rules, they should have been deducted 10% TDS. They must also have provided you TDS certificate (Form 16A).

TDS deduction by payee does not mean that no more income tax is payable. People may fall under 0-30% tax bracket but TDS has standard rate of 10%. So for people it might be extra tax being paid whereas some may have to pay remaining taxes (up to 20% more) from their own.

Income tax department has made TDS compulsory to that people can't hide their income. When TDS is deducted, income would show in form-26AS and IT systems, so one cannot runaway with this income.

As you have income from business/profession, you will have to file income tax return with ITR-4 form. As your total income for year was more than taxable range, income tax return filing would be mandatory.

ITR-4 is bit complex and you need to take care while filing income tax returns. You need to maintain profit/loss accounts for your freelancing work. If you want you can deduct all business expenses like internet/telephone bills, printing cost, hardware purchase, travel expenses from your business income.

If you don't put any expense then your income would be around 2.55 lakh. Income tax on such income would be around Rs 6700. if you have any 80C/80D deductions etc then this amount would reduce and there may be refund applicable.

Now coming to your current year case, if you get income from overseas, then also same rules would apply. Income would be considered as from profession/business. In case of income from foreign sources, its safer to file income tax returns even in case income is below taxable range.

I hope most of your questions are answered now. If you have any more questions, do comeback and file it as a separate thread.

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Income tax on amount earned through freelance work

1 Answers