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Decoding Freelance Taxes 3 Lessons and 100000 Savings

About the Case:

India proudly holds the title of the world's second-fastest-growing freelance market, offering freelancers like Raghavan in Bangalore a wealth of income tax advantages and savings prospects. Despite his commendable income and consistent income tax return filing, Raghavan encountered a significant challenge – securing a bank loan became an obstacle due to the inadvertent selection of the wrong income tax return form. In navigating this situation, Raghavan sought a solution to align his financial aspirations with the tax regulations in place.

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Issues faced By


Choosing the Right ITR Form:

  • Freelancers in India need to navigate the Income Tax Act of 1961, which categorizes income generated through manual or intellectual skills as "profit and gains from business and profession." However, confusion arises when selecting the correct Income Tax Return (ITR) form. Some mistakenly opt for ITR 1, designed for salary income, instead of ITR 4. This choice hampers their ability to secure loans, necessitating the filing of ITR 4 for smoother loan approvals.

Understanding GST for Freelancers:

  • Freelancers in India fall within the ambit of both Income Tax and Goods & Services Tax (GST) regulations. If a freelancer's annual turnover surpasses Rs. 20 lakhs (Rs. 10 lakhs for specific states) under the GST (Goods & Services Tax) Act of 2017, GST registration becomes mandatory. The applicable GST rate, typically 18%, may vary depending on the nature of the freelancer's services. This understanding is crucial for ensuring proper compliance.

Current Account Possibility for Freelancers:

  • Freelancer service providers can easily open a current account based on their professional details and transaction history. Current accounts play a pivotal role for freelancers and self-employed individuals, offering flexibility for multiple transactions, making and receiving payments seamlessly. This financial tool proves beneficial for the unique needs of self-employed and freelancing individuals.

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How TaxBuddy Helped

Unveiling Section 44ADA:

  • TaxBuddy introduced Raghavan to Section 44ADA, a provision within the Income Tax Act of 1961 tailored for professionals. This unique section simplifies tax obligations by allowing professionals to declare 50% of their gross receipts as income. The introduction of Section 44ADA significantly reduces the complexities associated with maintaining intricate expense records, providing a streamlined approach for self-employed professionals.

Understanding the Benefits:

  • TaxBuddy went beyond introducing the section, offering Raghavan a comprehensive explanation of the advantages tied to Section 44ADA. Through practical examples, TaxBuddy demonstrated the potential tax savings Raghavan could unlock by leveraging this provision. The clarification on the practical application of Section 44ADA in the Income Tax Act ensured a clear understanding of its benefits.

Shedding Light on TDS:

  • Raghavan gained valuable insights into Tax Deducted at Source (TDS), a critical aspect of income tax for self-employed professionals. TaxBuddy facilitated a comprehensive understanding of the 10% TDS deduction on professional services, ensuring Raghavan's compliance with Section 194J of the Income Tax Act.

GST Registration:

  • TaxBuddy addressed the mandatory requirement for GST registration if a freelancer's professional turnover exceeds Rs. 20 lakhs, as per the CGST Act of 2017. Recognizing this need, TaxBuddy extended its services to include GST registration and timely GST return filing, offering a holistic solution for Raghavan's compliance needs.

Smooth Tax Return Filing:

  • With TaxBuddy's guidance, Raghavan navigated the tax return filing process with confidence, opting for the Section 44ADA scheme. The computation of taxable income at 50% of gross receipts resulted in substantial tax savings amounting to ₹1,00,000. The practical application of Section 44ADA in the Income Tax Act, 1961, seamlessly translated into a successful reality for Raghavan, showcasing the effectiveness of informed tax planning and expert assistance.

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The Conclusion: 


Tax saving Journey

The impact of Section 44ADA became evident as a game-changer for self-employed professionals, simplifying their tax processes. This transformation emphasized the crucial role of expert guidance and a comprehensive understanding of tax provisions, including Section 44ADA and related GST services. Raghavan's satisfaction was palpable as his loan approval marked a successful outcome. Delighted with the smooth filing process and clear guidance on Income Tax Returns (ITR) and provisions, he enthusiastically recommended these services to friends, showcasing the positive impact of informed tax planning with TaxBuddy.

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