How To Compute Tax On Income From Freelancing?
Some people take on side jobs to earn more money. Freelancing is when you do different trades with different companies. The Income Tax Act says that if you make money from this, then you have to pay taxes on it.
When a freelancer makes money, it has to be reported on the “Income from Business or Profession” line. It doesn’t matter if you have a different tax rate than someone who is salaried. But the standard deduction for salary income can’t be used for freelancers.
You can use the money you spend in a year when you do work for your business. For example, you can deduct rent that you paid when the space was used for work. You can also take deductions for things like depreciation on eligible capital assets, office supplies, phone bills or internet bills.
You can claim some of your expenses. You can’t claim all of them. If you use the expense for both business and personal reasons, only a portion of it is deductible for business purposes.
If you earn money from a business or your profession, you need to report that in ITR 3. If you don’t choose the option to be taxed based on what others make, then ITR3 is the form for freelancers who work for themselves.
Taxability On A Presumptive Basis
People who work for themselves need to make books of accounts. The books will show how much tax they need to pay. If people are not working as a company, they can use a special way of calculating the tax owed based on the amount of money they made. This is called presumptive taxation and it is 50% of what you make from doing your own job or business.
If you have less than Rs 50 lakh in total income, you should adopt the presumptive taxation scheme. If you don’t, then interest will be imposed on your unpaid taxes. You need to file your return using ITR-4.
Opting For The Concessional Tax Regime
It is optional for people to choose a lower tax rate. This will be if they give up some deductions and exemptions, bringing forward losses and unabsorbed depreciation. People can do this in 2020-21.
If a person has a business or professional income, they can’t switch to the other tax regime every year. They only have one opportunity to switch. Once they do that, then they will have to pay taxes under that system for future years as well. This is true even if they stop freelancing and start working as an employee instead.
I hope you have liked our post which is related to the How To Compute Tax On Income From Freelancing? and if you have any doubts related to it then comment below to let us know.