Freelancers are on the rise in India because of growing awareness about freelancing as an option for earning income, and the demand for skilled and creative professionals, especially in graphic design, web development, software development, marketing, etc. In addition, there have been many changes that have made it easier for people to start their businesses from home. 

If you are a freelancer or are considering becoming a freelancer, you will find the information in this blog beneficial. This blog covers all the most frequently asked questions related to income and tax liability of Indian freelancers.

Things you need to know about freelancing in India!

Professionals from India are taking on freelance work to boost their careers. But, before you decide to start freelancing, you should be aware of the earning opportunities, and the laws that apply to freelancers. This is especially true if you are a non-resident freelancer who will be earning income in India. 

For more details, please read the entire blog.

Let’s get started!

Q1. How many Freelancers are in India?

The Indian subcontinent has been a hub of outsourcing for globalization companies. But nowadays, freelancing is becoming the new norm. 

Today, there are almost 15 million freelancers in India. This remarkable trend has been a significant factor in the growth of the startup ecosystem in the country. 

As per reports, the freelancers can be a real boon to start-ups, filling the gaps in their skill sets and helping them to scale up micro-enterprises.

Q2. How much do Freelancers earn in India?

Freelancers are increasingly becoming a part of the workforce, particularly with the rise of gig work. But how much do freelancers earn in India? What are the factors that play a role in determining their income? 

If you’re a freelancer or thinking about becoming one, then you must be aware of the fact that there is no fixed salary structure for freelancing.

But here are some details (based on the stats) on how much freelancers are earning through freelancing in India and the factors that play a major role in determining their income.

Let’s dig in:

According to some surveys reported by PayPal and AmbitionBox, and some well-known companies: 

• Professionals earn around 1.5 lakhs to 12.7 lakhs per annum with an average salary of 4.2 lakhs through freelancing.
• According to another report, around 23% of Indian freelancers are under the age of 40 and earn up to 60 lakh per annum.
• Also, another 23% earn between 2.5 lakhs to 5 lakhs per annum. While some freelancers also reported that they earn less than 2.5 lakhs.

Now, this question must have hit your mind, how some are earning 60 Lakh per annum while some earning less than 2.5 lakhs?

I have an answer for that too, the factors that determine their income:

• The Type of Expertise - there are different types of skills and services, ranging from medium to high-paying skills. In one of my previous blogs, I have discussed some of the high-paying in-demand freelance job skills you can learn this year.
• Your Portfolio - how much experience you have, and what you can bring to the table as a freelancer. If you’re quite experienced and always submitted excellent deliverables, then you easily charge a hefty amount considering the industry margin.
• Your Persona - Clients look for non-technical qualities also, such as professionalism, self-discipline, adaptability, initiative, and so on in a freelancer.

So, if you want to make enough revenue through freelancing you must learn high-paying skills, enhance your existing services, and might as well work on soft skills. 

Q3. Do Freelancers pay Tax in India?

Are you aware of the fact that as per the income tax laws, freelancers too are liable to pay taxes for the income they earn just like other salaried or business taxpayers? 

While it is true that the freelancers have more freedoms and they need not stick to a regular office job, they are also liable to pay taxes for the income they earn. The income of freelancers is considered as a category that comes under the income head “Business and profession”.

It is the responsibility of the freelancers to file their taxes and pay taxes for the money that they earn if they fall under the category of taxpayer or non-taxpayer. 

Q4. Freelance Income Tax Slab Range

In India, according to law Income Tax is charged on every income earned. The tax applies differently for different ranges of income. These ranges are considered Income Tax Slabs. Also, it is updated and announced by the finance minister on the Union Budget each year.

• Those who earn an income between Rs. 2.5 to 5 lakhs are taxed at 5%.
• A 10% income tax is levied on earnings ranging from 2.5 lakhs to 5 lakhs.
• If your income is between 5 and 10 lakhs, you must pay a 20% tax.
• Freelancers earning more than 10 lakh rupees must pay a 30% tax.

Q5. How do Freelancers pay their Income Tax in India?

Let’s learn more about how these taxes are calculated and how freelancers pay their income tax in India.

To pay their income taxes a freelancer requires to file the ITR (Online income tax returns) in India. So, now how do you decide how much tax you need to pay?

1. Start with calculating your gross income. It should be calculated for a given financial year i.e., from 1st April of any year to the 31st of March of the following year. Any kinds of loans shall be excluded. 

2. The tax rates apply to the profits only. So, you must deduct all the expenses of the financial year from the gross annual income. Here, the business expenses can be internet charges, telephone expenses, or a purchase you make to supplement your business, etc.

3. Depreciation deduction is one of the most important parts of your tax return and you need to be aware of it. Depreciation simply means reducing the book value of any property that has been purchased over a while. Depreciation can be claimed on vehicles, buildings, furniture, fixtures, and many more.

4. There are certain exemptions that freelancers can fill in their ITR form, such as all the fees paid for business purposes can be exempted from freelancers' income text. For example,

• Rented space for work
• Fees paid for business subscription
• Fees paid for holding membership of the professional association

5. Extra income or gains made from all the other sources must be included in the taxation. Such as,

• Income gained from a property.
• Interest that is acquired from the fixed deposit or saving accounts.
• Gained made from trading shares, equity.

6. Tax deduction under section 80, is the most favorite section for the taxpayers, here’s the reason why:

There are more subsections under section 80 which is applicable for freelance tax exemptions.

7. Claim the TDS (Tax Deducted at Source) for freelancers while filling the ITR Form. For this purpose, freelancers will need to use Form 26 AS.

8. A freelancer can also choose to pay the tax in advance, in this advance tax process - a freelancer has to pay taxes during frequent intervals instead of paying the tax at once. But if freelancers fail to pay the tax there would be charges which will be added to their final tax account under sections 234 B and 234 C following the Income Tax Act.

9. There’s one more taxation method a freelancer can use, the “Presumptive Taxation”. Earlier it was only limited to the businessman but as the new section, 44ADA was inserted into the section 44AD of the Income Tax Act. Now, presumptive taxation is also available for professionals (freelancers). For businessmen, the tax levied is 8% of their total gross annual income whereas, 50% for the freelancers.

10. When filing their tax returns, freelancers can use the form ITR-4. 

• If the income exceeds Rs 1 crore, the account records must be audited in accordance with ITR requirements (Section 44AB). In this situation, one must file the ITR before September 31st.
• If the annual turnover is less than Rs 1 crore, no audit is necessary, and the deadline for filing the ITR is July 31st.
• If a freelancer chooses the Presumptive Method of Taxation under Sections 44AD and 44AE of the Income Tax Act, the ITR Form 4S should be used.

Q6. GST (Goods and Services Tax) for Freelancers

- GST for International Clients

The taxation policies favour freelancers who work for foreign clients. Clients from abroad pay for work in a different currency than INR. They sometimes pay in USD, EUR, or other currency. Freelancers have to pay zero percent GST on such currencies. For other currencies, taxation could range between 0 to 18%.

Even though freelancers are not required to pay GST, they need to get their business registered and have a distinct GST number for their services. It is essential for individual freelancers to be tax compliant and have a secured letter of undertaking from government body that is valid for a financial year.

- GST for Indian Clients

Freelancers who cater to Indian clients will be charged 18% GST based on annual income if it crosses Rs. 20 lakhs. Until then, freelancers do not have to register under GST. But this fact does not apply to freelancers living in some regions of Jammu and Kashmir, Himachal Pradesh or Uttarakhand. Freelancers earning Rs. 10 lakhs or more are expected to register under GST.

Advice:

Use the Form 26 AS which is directly linked to your pan card. Form 26AS is an annual statement that contains all of the information concerning the tax deducted at the source (TDS). Information on the tax collected by your collectors, including any advance tax paid. 

Also includes information on self-assessment tax payments, regular assessment tax that you have deposited, information about the return you received during a fiscal year, and information on high-value transactions involving mutual funds, shares, and so on.

Q7. Do Freelancers need a Business License in India?

No, freelancers do not require a trade license or to register as sole proprietorships or businesses to begin freelancing in India if their annual earnings are less than 20 lakh rupees. 

So, it simply means you can start freelancing without any business license. Since freelancing is also seen as a small business and any kind of business is by default considered a proprietorship, it is advisable for freelancers to register as a sole proprietorship later on. For a detailed information on your freelance business registration, I advise you to read the detailed article: Registration for your Freelance Business and Licensing - 80% of Freelancers are Unaware!

It has some advantages and can help structure your business like managing your income tax, tax deduction, and personal gains.

Final Words!

I hope you enjoyed the post and that it answered all of your doubts about the laws and freelance income tax in India. If you have any questions about freelancing, we would be pleased to help. If you have any questions, please contact us or leave a comment below.