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.
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.