Freelancing is often referred to as “extra money” for a number of reasons. Some individuals want their hobby to pay for itself, while others want to “test the waters” before making a significant investment. That, though, is unimportant. The notion is that money from freelancing is income, regardless of how little it is. Furthermore, “Any money produced through freelancing employment is taxed as “Profits and Gains from Business / Profession” under the provisions of the Income Tax Act of 1961.”
The vast majority of freelancers are ignorant of this particular law (Income Tax Act 1961), which is also why they do not pay Income Tax. Ignorance of the law, on the other hand, is not acceptable, and the aforementioned freelancer may face legal ramifications for neglecting to pay Income Tax. As a freelancer, not everyone can afford to employ a Charted Accountant, much alone disclose our income sources to anybody else, unless the individual is family or a very trusted friend. That ultimately leaves us to manage our taxes and paperwork on our own.
However, every finance-related website (Government or otherwise) is so heavily packed with jargons that it becomes more difficult for a non-finance expert to comprehend and do his or her own tax calculations. As a freelancer myself, I completely understand and sympathise with the fellow freelancer. Here is a short overview from the brochure on how Indian freelancers may manage income tax computations until they are ready to hire a Charted Accountant:
* Typical freelancers operate with a large number of clients and earn income via a variety of payment methods (payment from clients for services / products supplied). Income transactions must be segregated from bank statements and personal transactions to avoid calculating mistakes.
* Total Income is reduced by business-related expenditures such as the purchase of a printer cartridge, a new computer, and domain hosting fees. Income tax is levied on the resulting amount.
* When assets are depreciated, the total tax payable is substantially decreased.
* In addition to business expenses and asset depreciation, some investments are tax deductible under Section 80C. (eg, PPF, Housing Loan etc)
Total Deductions – NET Income = Taxable Income
Because there is no need to wait in line at banks or the Income Tax Office, the whole income tax computation and payment procedure is simplified and expedited.
Every individual who earns a living is obliged by law to pay taxes to the government in order to contribute to the growth of his country. However, some of us are uncertain about the correct facts in this matter. This pamphlet is designed to serve as an educational resource for Indian freelancers so that they can manage their own taxes until they can afford to hire a CPA.
