Income tax returns filing: Being a freelancer doesn't mean you are not liable to pay

There are section of people who love to have free working hours, hence they always opt for working as a freelancer. This one form of business is popular for being very flexible, as it makes you the boss of your time, unlike in corporate world where you have shifts and are paid according to your office hours and targets. Yes, freelancers also have a target to complete, but they have a time period and when their work is done they can always move on to other ones. Freelancing has become quite popular these days among those who want flexible working hours and also among the ones who want to make that extra buck in addition to their regular sources of income. However, freelancers too are governed by the income tax laws and there are certain tax regulations they need to comply with.  These compliances include maintenance of books of accounts, computing taxable income, filing returns, paying taxes on income earned etc.

Archit Gupta, Founder & CEO ClearTax  says," When it comes to determining a freelancer’s taxable income from freelancing work, it is important to note that a freelancer need not offer his income receipts to tax directly. He is allowed to claim as a deduction, all expenses that are related to and incurred in the course of discharging his responsibility as a freelancer, from his freelancing income." 

Let us decode for you what expenses you can claim if you are freelancer, as per Archit Gupta, Founder & CEO ClearTax. 
 
Rent and Repairs: The rent paid for the office workspace can be claimed as a tax expense. In case a freelancer utilises his residential space for office as well, then the rent apportioned towards office space can be claimed as an expense. It is possible, as per the lease agreement, the lessee is responsible for bearing the expenses for the repairs. In such instance, the amount spent for repairs can also be claimed as an expense.

Office expenses: Expenses incurred towards regular office supplies including stationery, telephone bills, internet bills, electricity, expenses for domain, app purchases,  etc. can be claimed as a deduction.

Depreciation: Generally the life of a capital spans to over more than one year. Therefore, when the asset is purchased it is not recorded as an expense, but is capitalised. Every year a small portion of the cost is reduced from the income till the asset is in use. The rate of depreciation and method of computation has been laid out in detail in the income tax act. Depreciation on a laptop you are using for your work can be one such depreciation claim.

Travelling Expenses: Travelling expenses incurred for work related purposes, can be claimed as a business expense. It is important to note, that expenses incurred for personal travel cannot be claimed here.

Hospitality Expenses: To retain existing business relations and to build new ones, expenses are incurred for taking such partners for meals or some other modes of entertainment. These expenses are also allowed as business expenses. However, before claiming these expenses one must ensure that there are no personal expenses being claimed as deduction.

Subcontracting and TDS: As a freelancer, it is possible that some part of the work is outsourced or there are people who work full time. In such cases it is the responsibility of the freelancer to deduct and submit TDS  on such personnel’s behalf and issue a Form 16.

Interestingly, as a freelancer, if you fall under certain prescribed professions viz. Legal, medical, engineering, architectural, accountancy, technical consultancy,  interior decorator, authorised representative, film artist, company secretary, information technology etc. law allows you to opt for presumptive taxation wherein, if your gross receipts are less than Rs 50 lakhs, you can straightaway offer 50% of your gross receipts to income tax. In such a case, you cannot claim any of your expenses as a deduction. Further, you will not be bound by the mandate to maintain books of accounts too.

The due date for a freelancer to file his return of income is 31 July if he is not subject to any audit under the income tax law. Further, he must file his return in ITR 3. In case he opts for presumptive scheme, he can file his return in ITR4.