Income tax filing can seem like a daunting task, but with the right knowledge and guidance, you can make filing your taxes a breeze. Filing income tax returns is not just a compliance requirement but also an opportunity to reduce your overall tax liability and maximize your earnings.
In recent years, the Indian gig economy has been booming, with the number of freelancers and self-employed individuals growing exponentially. The pandemic has only fuelled this growth, as many people have found a way to turn their passions into a viable source of income.
How to file an income tax return?
Freelancers and self-employed individuals in India must file their income tax returns (ITR) if their total income during the relevant financial year exceeds the basic exemption limit of Rs. 2.5 lakhs for FY 2022-23.
Step 1: Determine financial liability
If the total income of an individual during the relevant financial year is greater than the basic exemption limit, i.e. Rs. 2.5 lakhs for FY 2022-23, they have an obligation to file a tax return. However, individuals with income below this limit can still file a tax return voluntarily.
Step 2: Ensure the deadlines
The due date for filing the tax return for freelancers and self-employed individuals who are not required to get their books of accounts audited is July 31, 2023. However, the due date for those who are required to get their books audited is October 31, 2023. If you miss these deadlines, you can still file the tax return until December 31, 2023, but with a late filing fee.
Step 3: Calculate the amount of tax
The tax rates for freelancers and self-employed individuals are the same as for salaried employees. However, you can choose to opt for a simplified tax regime if you meet certain conditions. The taxes you owe will be increased by applicable surcharges (ranging from 10% to 37%) and a health and education cess of 4%. If your total income is less than Rs. 5 lakhs, you may be eligible for a tax rebate of Rs. 12,500.
Step 4: Requirement of a tax audit
If your gross annual turnover exceeds 1 crore, you will need to get your books audited. This threshold is 10 crore if your cash receipts are restricted to 5% or less of the total turnover and payments are restricted to 5% of the total payments.
You may also be required to undergo a tax audit if you carry on a business specified for presumptive taxation but offer to tax income lower than the limits specified for therein, and your income is more than the taxable limit during the relevant tax year. The threshold for professional receipts for such an audit is 50 lakhs.
Step 5: Determine the correct tax form
If you have income under the head “Business or profession,” you should file your tax return using either ITR 3 or ITR 4. The tax authorities have released all the income tax return forms for FY 2022-23.
Step 6: Filing ITR-4
Individuals or businesses with income under the head “Business or profession” and whose taxable income doesn’t exceed 50 lakhs are required to file their tax returns using the ITR 4 form. This form is also applicable for those who have opted for presumptive taxation.
However, individuals or businesses with capital gains, more than one house property, or any income or assets outside India are not eligible to file ITR 4. To ensure that the taxes are filed correctly, individuals must make sure they meet all the conditions before they file their tax returns with this form.
As a freelance professional, you can avail of various tax deductions to reduce your overall tax burden. Whether it’s for saving for your retirement or for claiming deductions against paying premiums for health insurance, tax deductions are a great way to make your earnings go further.
You can avail of tax deductions of up to ₹1.5 lakhs against investments towards tax-saving schemes. You can also claim deductions against investment towards government-specified infrastructure bonds, treatment expenses of a disabled dependent of an assessee, charitable contributions, and interest paid towards an education loan.
So make sure to take advantage of these tax deductions to reduce your tax liability and maximize your earnings.