Part-time job Taxable with Full-time job?

Prem 1
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Hi, I'm currently employed in an IT Firm. In the weekends and free time, I just started do some freelancing software job for some clients. I just started to receive some payments from my freelancing clients through my Paypal account.
My income by my Full-time company was 5L per annum, and do pay income tax and file IT returns every year. As now I started to receive some payment for freelancing jobs also, I have few queries.

  1. The freelancing work is taxable on which slab of Income tax act of India?
  2. Do my regular income is independent of my part-time income?
  3. How should I file tax for my part-time income?
  4. Whether my part-time income will reflect in my form 26AS because of my PayPal account, where I had given my PAN card.
  5. If my part time income are taxable, how do I reduce the tax? Some sections like 80C, 80D, etc.. which I declare for my full time job is independent of my part time job. Can I declare for both works?
  6. What are all the steps I need to take right from the beginning to avoid last minute surprise of hefty tax liability at the end of fiscal year? Please provide some suggestion, Do and Don't ? Please..
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1 Answers
  1. Freelancing payments would be considered as income from business/profession. Tax slabs remain same, total taxable income would be added both from salaries and business.
  2. Regular income would be put under different head (income from salaries) and part-time income would be put under income from business.
  3. You would need to file return using ITR-4 form. In it, you can mention both salary income as well as income from freelancing work.
  4. Form 26AS would only show entries where tax has been deducted in form of TDS. As paypal does not deduct TDS, income thru paypal won't appear in Form 26AS.
  5. Section 80C, 80D etc are applicable on total taxable income (whether from salaries or business). Say, your total taxable income from both sources is 7 lakh and you did 1 lakh 80C saving, then 6 lakh would be taxed. These deductions cannot be applied twice for salary and business income.
  6. Income from business is computed after deduction of business expenses like internet charges, mobile phone bills, hardware/software purchase, marketing cost etc which are incurred for running the business. So even if you earned higher amount as freelancing work, net taxable amount would be profits only from this work.
  7. You should maintain accounts of expenses and then at year end create a profit/loss (P/L) account. Income tax on this extra income should be paid in advance installments to save penalty u/s 234A, B and C.
Pankaj Batra5212

Thanks a lot, Pankaj. Your's points helps a lot. Which also raises some follow-up quesitons...

If my Form 26 AS wont reflect my freelancing earning, then where do my earning will reflect? How do IT department will know about my freelancing work? (its not to cheat gov, just curious to know) Secondly, I do earn a small amount of money in freelancing, it not regular I may get or I may not get job, then how do I will pay advance tax on what basis? Lastly, If my business expense is more than my earning from that, what should I need to do? I don't need to pay anything? You mentioned to maintain a Profit/Loss account, how to start maintaining that? What are all the proofs I need to submit for this Freelancing job?

Prem•

Form 26AS is a Tax credit statement and not a income certificate. Your earnings would only be in bank accounts (from salaries and paypal) :)

IT department won't know about freelancing work, unless you declare it yourself or they call you for scrutiny.

Advance tax is paid in installment 30% of income tax has to be paid by Sept 15, 60% by Dec 15 and rest by Mar 15. If self paid tax is less than Rs 10,000 (other than TDS), no penalty would be imposed. This interest won't be a big amount.

If business expenses are more than earnings, it would be a business loss. This can be carried forwards to next years so that in case you have business profit in next years, it can be adjusted against that. No income tax is payable on a business loss.

You can start maintaining a simple excel showing date of payment received, amount and source. This would also have all expenses incurred like bill payment, date and reason for this payment.

IT department needs no proof from you, they just need your declarations of income and expenses in ITR. In case they doubt you, they can call you to show proofs (bills, bank account statements etc).

Pankaj Batra•

Thanks a lot Pankaj. This really helps. Right now I just received two payments and some payments are in-due. I'll start maintaining a excel sheet with all the details as you have mentioned. From your answer, I assume I don't need to declare my freelancing job in IT returns, if its went loss this year.
Again Thanks a lot. It clarifies a lot and gave good direction for me to proceed further.

Prem•
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