Nature of Freelancing Income

• Freelancing income is treated as professional or business income under the Income Tax Act.
  
• It is classified under the head “Profits and Gains of Business or Profession.”
  
• Freelancers may offer services in fields like writing, designing, consulting, and software development.
  
• Income from both domestic and foreign clients is taxable in India.
  
• Even part-time or side-income through freelancing is subject to tax.
  

Applicable Tax Rates

• Freelancers are taxed as individual taxpayers based on the income slab system.
  
• The income is added to total income and taxed accordingly.
  
• Tax slabs and rates applicable are the same as for salaried individuals.
  
• Freelancers can opt for either the old or new tax regime, based on benefits.
  
• Advance tax provisions apply if total tax liability exceeds ₹10,000 in a year.
  

Allowable Deductions and Expenses

• Freelancers can deduct expenses directly related to earning their income.
  
• Allowable deductions include rent of office space, internet charges, travel, software, and depreciation.
  
• Salaries paid to assistants or staff can also be claimed.
  
• All expenses must be genuine, supported by bills, and incurred for business purposes.
  
• Profits are calculated after deducting allowable business expenses from gross receipts.
  

Presumptive Taxation Scheme

• Freelancers with gross receipts up to ₹50 lakhs may opt for presumptive taxation under Section 44ADA.
  
• Under this scheme, 50% of total receipts are treated as taxable income.
  
• No need to maintain detailed books of accounts or audit.
  
• Cannot claim further business expense deductions under this scheme.
  
• Simple and suitable for small or part-time freelancers.
  

Return Filing and Compliance

• Freelancers must file ITR-3 (for regular business income) or ITR-4 (for presumptive taxation).
  
• Must maintain books of accounts if not under the presumptive scheme and income exceeds limits.
  
• Foreign income must be converted to INR and included in total income.
  
• Goods and Services Tax (GST) may also apply if turnover exceeds the threshold.
  
• Timely payment of advance tax and return filing ensures compliance and avoids penalties.