As a freelancer in India, understanding how to manage your taxes and invoicing is critical to staying compliant and building a sustainable business. Here’s a simplified guide:
1. What Income Is Taxable? Freelance income is considered “Business or Professional Income” under Indian tax laws. If your annual income exceeds ₹2.5 lakhs, you must file Income Tax Returns (ITR).
2. Choosing the Right ITR Form
- Use ITR-3 if you maintain books of accounts.
- Use ITR-4 under the presumptive scheme (Section 44ADA) if your income is below ₹50 lakhs. This allows you to assume 50% of gross receipts as taxable income.
3. GST and Freelancing You must register for GST if your annual turnover exceeds ₹20 lakhs. Even if optional, GST registration can be helpful if clients request GST invoices.
4. Issuing Professional Invoices Invoices should include:
- Your name and address
- Client details
- PAN and GSTIN (if applicable)
- Invoice number and date
- Description of services
- Amount and tax breakup
Tools like Zoho Invoice, Refrens, or Vyapar can automate this process.
5. Advance Tax Freelancers are required to pay taxes in four quarterly installments if their annual tax liability exceeds ₹10,000. Missing these deadlines can result in penalties.
6. TDS (Tax Deducted at Source) Clients may deduct TDS (usually 10%) when paying you. Always check your Form 26AS and claim the deducted amount when filing your return.
7. Track Expenses and Save Receipts You can deduct business-related expenses such as internet, software subscriptions, workspace rent, and even part of electricity bills. Maintain organized records.
8. Hire a CA or Use Software A CA can guide you on compliance and saving tax legally. Alternatively, tools like ClearTax or QuickBooks can simplify filings and help with invoicing.