Taxation of Freelancers

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                      Taxation of Freelancers


With time, changes the business pattern, demand and expectation. It also changes the mode of earning by the person. Now, it’s the time for online presence and earning. Everything else will get outdated. There is no need to visit the doctor because the doctor is available online. There is no need to visit the tax consultants because it is a presence online. There is no need to visit the consultants because they are present online.

There is no need to seek personal advice because Google is replacing almost everything.  All above sites who are doing business online have increased the business of online sites manifold as compared to traditional practitioners. Now, all such sites are full of content which requires the presence of good quality material on their sites for visitors to visit and pass on the business.

It has created a new field for the persons commonly referred to as “freelancer writer or contents writer. It is a modern style of working as a result of which one is his own boss.  There are numerous people who are now working as a freelancer for all such sites. This category of freelancers includes residents as well as non residents. Question received by me is now with regard to the income received as freelancers.

This write up is a discussion related to the taxation of freelancers. The provisions related to Freelancers are discussed hereunder:


1. Income of freelancers is not exempt from tax. Normally, section 10 in the Income Tax Act provides for the exempt income. Freelancers income is not included therein which means that it is within the definition of taxable “income” in the Income Tax Act – 1961

2. This income could either be taxed as “Business income” or “Income from other source” depending on frequency, track record, qualification, nature, etc of the freelancer. In business further, income could be income from business or income from profession depending upon the qualification of the person. Certainly, income of freelancers could not be offered for taxation as “Salary” income as the relationship of employer – employee is missing in such cases.

3. The provision related to the maintenance of Books of Account is contained u/s 44AA of the Income Tax Act- 1961. If gross receipts from profession in any one the last 3 years exceed Rs.1.5lacs then the books of account is mandatorily required to be maintained.. Further, if gross receipts from profession exceeds Rs.50 Lacs in case of professionals (Rs. 1 Cr or Rs. 2 Cr in case of business) then the tax Audit of accounts is also required from a CA.

4. Resident freelancers can offer the income on presumptive basis taxation. For this the limit is Rs. 50 Lakh for professionals & Rs. 1 Cr or Rs. 2 Cr for business. For professionals, the presumptive scheme requires the person to offer income @ 50% of gross receipts for taxation in case of professionals & 8% in case of businessmen. This 8% is to be replaced by 6% if the payment is received in digital mode.

5. In case of payment to Non Resident in foreign currency by Indian, Form 15CA and CB is required to be filed. For such non-resident, TDS will also be required to be done by the payer and so payer is duty bound to do the TDS. For claiming the refund of TDS, such NRI will be required to file a return of income in India. Else, such NRI can get the credit of DTAA for the TDS amount in their home country.

6. The due date of filing income tax return is 31st July (now extended to 30.11.2020 for the FY 2019-20). However, if audit of accounts are required then the due date for filing income-tax returns is 30th Sept (now extended to 30.11.2020 for the FY 2019-20).

7.  It may be noted that the payer of income may be doing TDS on their payment which may be @ 10% in case of professionals and 1%  or 2% or 10% in case of businessmen depending upon its classification by the payer. It may be noted that  TDS rates have been reduced by 25% from 13th May 2020 to 31st March 2020 due to Covid-19.

8. Apart from Income Tax, GST applicability is also there if the amount received exceeds the basic threshold limit. Such freelancers will be required to make the bill with GST @18%. The threshold limit for such freelancers are required to get themselves registered under GST is Rs. 20 Lakh now (this limit for service provider has not been enhanced to Rs 40 Lakh). However, for some states like Assam, Manipur, Nagaland, Sikkim, Arunachal Pradesh, etc. the limit is Rs. 10lacs. Service providers are not eligible to opt for composition scheme. If registered then GST returns will also be required to be filed by such freelancers.


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