Slaying taxes like a pro! - The freelancer’s guide to taxes!
Hey there ladies! We’re so excited about writing this article out. Being your own boss comes with its own sense of independence and control. But being financially independent is a lot more than just managing your money. It is about paying the bills, earning more of the green (IYKYK), protecting it and growing it! Let’s also talk about the critical elements, like paying your taxes. Many of us turn to our Chartered Accountants to help us do this. Convenience, Amirite! But what if we told you that it’s not all that complicated. It’s just a couple of steps one after another, and voila! All done! So, we’re assuming this pep-talk pepped you all up to get started on understanding your taxes? Let’s splash right in!
First things first! What is freelance income? Freelancing income is when you as an individual get hired to finish a specific assignment within a specific period of time. This is under the understanding that you will be paid at the end of the final submission. But how is it different? You are not under the company payroll, and instead, get paid for just that project you are picking up. You also don’t get access to other employee-like benefits such as health insurance, PF and so on. Many times, you do not work for a stipulated number of hours either. So then, how is this income even segregated from a ‘regular’ pay?
Typically, clients deduct a 10% TDS ( Tax deducted at source ) and then pay out your charges. So for instance, your fee is ₹ 50,000, ₹ 45,000 will be paid out to you, post taxes. Your income also needs to be added under “Profits and Gains from Business or Profession” as per the income tax act and is taxed as per those rules.
So how do I calculate my income? Your gross income will be the addition of all the receipts you collect in one financial year for the various projects that you picked up through that year. You can keep a track of this through your bank statements.
As a freelancer, you also incur expenses through the course of your work. This could be anything from an Internet connection, to furniture and even the cab fare you might incur while meeting your client. Basically, anything that helps you earn that income.
Now, let’s talk about the actual issue. Paying your taxes. What do you pay? How often and how? As a taxpayer, you are allowed deductions under section 80C of your Income-tax form.
Net Taxable Income = Gross Taxable Income – Deductions
You can reduce your taxable income by up to ₹1.5 lakh by claiming a deduction for the amount actually invested under tax-saving investments like PPF, for example.
Once your total tax liability during a financial year exceeds ₹ 10,000, you will need to pay taxes every quarter. This is called advance tax.
How do I calculate advance tax?
Add up all your receipts and arrive at your total income.
Subtract expenses directly related to your work. (Remember, only related to your work)
Add income from other sources, for example from house property or your savings account.
Find out the tax slab you belong to and calculate your tax due accordingly.
If the tax due exceeds ₹ 10,000, you are required to pay advance tax by the due dates.
Oh, we almost forgot! Which form do you pick? You will have to choose between ITR 3 and ITR 4. Based on your income, you will have to choose between the two.
ITR 4 is applicable to individuals (You) and HUFs, Partnership firms (other than LLPs) which are residents having income from a business or profession. However, if you have a business turnover that exceeds ₹ 2 crore, you will need to pick ITR-3. Bottom Line Taxes can be taxing! Phew! But once you get the hang of it, it is one of the quickest things you can understand about money. You will be able to plan your expenses and your investments in advance, and take advantage of earning the maximum from your savings.