The taxation and tax filing process for salaried employees is quite simple. This is because the HR department of every organisation provides Form 16, regularly reminding their employees about the deadlines for filing their ITR. 

 

However, when it comes to freelancers and consultants, calculating tax liabilities and filing taxes can seem a bit more complex. As such individuals generate income from multiple sources and clients, factoring in the total taxable income takes a measured approach. 

 

Read on to know more about income tax for freelancers and consultants and the tax deductions you can enjoy as a freelancing professional.

Taxation Limits for Freelancers and Consultants

Freelancers and consultants are working professionals with the freedom to choose projects and clients. Freelancing is a short-term association for which the client provides compensation for the services offered.

 

As per the Income Tax Act of 1961, any income generated by employing manual or intellectual skills falls under the head of ‘Income from Business and Profession’. Any compensation provided for freelancing services also comes under the same head.

 

Freelancers and consultants also need to pay taxes on their income as per applicable tax rates based on their tax slab. The only condition is that their total taxable income must exceed the basic tax exemption limit. 

 

The applicable rate of taxation and the basic exemption limit depends on the direct tax regime you choose and your total taxable income. You can calculate freelance taxes based on the rates provided in the table below:

Old Tax Regime

New Tax Regime

Tax Slabs 

Applicable Rate

Tax Slabs

Applicable Rates

₹0 - ₹2.5 Lakhs

0%

₹0 - ₹3 Lakhs

0%

₹2.5 Lakhs - ₹5 Lakhs

5%

₹3 Lakhs - ₹6 Lakhs

5%

₹5 Lakhs - ₹10 Lakhs

20%

₹6 Lakhs - ₹9 Lakhs

10%

10 Lakhs and Above

30%

₹9 Lakhs - ₹12 Lakhs

15%

-

-

₹12 Lakhs - ₹15 Lakhs

20%

-

-

₹15 Lakhs and Above

30%

If your total taxable income is below ₹5 Lakhs, your entire income will be tax free under the old tax regime. However, this limit is ₹7 Lakhs if you have chosen the new tax regime. 

 

ITR filing for freelancers is now easier as you can avail of the Presumptive Income Scheme under Section 44ADA of the same Act. If you choose to file your freelancer ITR under this section, you need to pay tax on income of only half of your gross annual income.

 

However, you can avail of this benefit only if your gross income for the assessment year is less than ₹50 Lakhs. 

Process of Filing Income Tax for Freelancers

You can follow this process for filing your income tax if you are working as a freelancer in India.

  • Visit the IT Department website at https://www.incometax.gov.in/iec/foportal/

  • Click on the ‘Download’ option

  • Select Form ITR-4 and download it

  • Complete the required details

  • Calculate your tax using Form 26AS

 

This way, as a freelancer, you can claim your deductions and exemptions depending on various sections to save tax for a particular assessment year.

Tax Deductions Available for Freelancers

Here are a few sections allowing freelancers to claim tax deductions:

  • Section 80C allowing freelancers to claim a maximum deduction of ₹1.5 Lakhs against various tax-saving investments

  • Section 80CCC for investments made in pension plans

  • Section 80CCD for investments made in government schemes

  • Section 80D for premium payments made towards health insurance policies

  • Section 80E for interest paid towards educational loan

Advance Tax for Freelancers and Consultants

Before completing your freelancer tax filing, you must check if you are liable to pay advance taxes. If your tax liability exceeds ₹10,000 as a freelancer or a consultant, you have to pay taxes every quarter as advance tax. 

 

You can calculate your total tax liability by reducing expenses and TDS deducted from your earnings. Now, add income from other sources like rent from house property, capital gains, etc. If this amount is ₹10,000 or above, you are liable to pay advance taxes.

TDS for Freelancers and Consultants

Under Section 194J of the Income Tax Act of 1961, any payment for services rendered is liable for a tax deduction. The payer is required to deduct 10% TDS from the total amount at the time of payment and deposit it to income tax authorities.

 

If the taxes you pay are in excess of your tax liability because of TDS, you can request a refund at the time of filing ITR. You can access the information on TDS deducted from your income through Form 26AS, which is available on the Income Tax Department portal. 

FAQs on Taxation of Freelancers and Consultants

Which ITR form is applicable for ITR filing for freelancers?

For freelancer tax filing, you need to file forms such as ITR-3 and ITR-4. These forms must contain details related to sales and their sources, expenses, total tax paid, advance tax and exemptions availed under the Income Tax Act. 

Where can I file my ITR as a freelancing professional?

You can file your freelancer ITR-4 or SUGAM on the Income Tax Department Portal. You can also file ITR for freelancers and consultants using the JSON utility.

Can I avail exemption on income tax for freelancers?

Yes, you can avail of deductions on income tax for freelancers under Sections 80C to 80U of the Income Tax Act of 1961. For instance, you can avail of tax exemption on the amount of your investment made towards ELSS, SSY, NSC, etc., under Section 80C. 

 

Similarly, while 80D lets you enjoy deductions on health insurance premium payments, Section 80E allows you to enjoy tax benefits on education loans. 

Is advance tax applicable to me if I am a freelancer or a consultant?

Yes, if your total tax liability exceeds ₹10,000, you will be liable to pay advance tax every quarter.

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