This is Part 9 of Money Basics for Indians, our 12-part series on the everyday money systems every Indian should understand. New here? Start with Part 1: Bank Accounts and Deposit Insurance, or read the previous part, Part 8: Filing Your ITR.
Designers, developers, writers, consultants and creators make up a growing share of India's workforce. Without an employer deducting tax each month, freelancers have to plan tax themselves. The good news: the rules are simpler than most people fear.
How your income is taxed
Freelance income is taxed as income from business or profession, at your normal slab rates under the regime you choose. See Part 6: Old vs New Tax Regime. You can either:
- Keep books of accounts and pay tax on actual profit, deducting genuine business expenses like a laptop, software, internet and a share of rent; or
- Use presumptive taxation, which is simpler.
Presumptive taxation for professionals
Under the presumptive scheme for specified professionals (Section 44ADA under the old Act, carried into the new Act), you can declare 50 percent of your gross receipts as income and pay tax on that, with no detailed books needed.
- Available if gross receipts are up to ₹75 lakh, provided cash receipts are no more than 5 percent of the total; otherwise the limit is ₹50 lakh.
- It covers specified professions such as technical consultancy, engineering, architecture, law, medicine, accountancy and interior design. Check whether your work qualifies.
- Small businesses have a separate scheme where income is presumed at 6 percent of digital receipts or 8 percent of cash receipts.
File using ITR-4 for presumptive income, or ITR-3 if you keep full books. The due date is 31 August. See Part 8: Filing Your ITR.
Advance tax
Freelancers usually need to pay advance tax. Under the presumptive scheme, you can pay the full amount by 15 March. Otherwise, pay in four instalments by June, September, December and March. Details in Part 7: TDS, Advance Tax and AIS.
TDS from clients
Indian clients often deduct TDS, commonly 10 percent, from professional fees. Check that it appears in your Form 26AS, and claim it when you file.
GST
- Service providers must register for GST once their annual turnover crosses ₹20 lakh (₹10 lakh in some special category states).
- Exports of services to foreign clients can be zero-rated if you file a Letter of Undertaking (LUT).
- Keep the bank's foreign inward remittance records for overseas payments.
Simple systems that help
- Use a separate bank account for work income.
- Move a fixed share of every payment, often 20 to 30 percent, into a tax savings account.
- Send proper invoices and keep records for at least eight years.
- Build a larger emergency fund, since income can be irregular.
- Buy your own health insurance. See health insurance basics.
This article is for general information and education only. It is not financial, tax or legal advice. Rules, rates and limits change often, so check official sources such as the RBI, the Income Tax Department or India Post, or speak to a qualified adviser, before acting.
Next in the series: Part 10: Your Rights as a Bank Customer.
