The term 'freelancing' refers to self-employment and consultancies. If professionals of any particular field decide not to work under salary and prefers to work independently, they are called freelancers. Freelancers mostly work on projects & assignments rather than working with fixed-time like employees.

Income Tax on income earned by the freelancer

Income received by the freelancer is taxable under the head of Profits and Gains of the Business and Profession.

Further you may take the advantage of Presumptive Taxation of Section 44ADA. The Section 44ADA provides a scheme of presumptive taxation of profits and gains earned from professions referenced under Section 44AA(1) of the Income Tax Act, 1961.

The advantage of section 44ADA can be taken exclusively by those predefined professionals whose yearly gross receipts are under Rs 50 lakh. According to said section half of your Gross Receipts will be considered as Business Income.

Subsequent to showing up the Total Income you need to calculate the tax by picking most helpful option from both of the underneath option. Also, there by Arrive at amount of Income Tax Due.

Any place advance tax provisions is relevant, and freelancer who profited the advantages of Section 44ADA, need to pay Income Tax (as Advance Tax) in one portion at the very latest 15 March 2021.

In case provisions of Advance Tax isn't applicable at that point, freelancer have an option to pay the entirety of their tax duty by 31 March 2021.

(Also Read: Best tax saving options in 2021)

Basic Information about Section 44ADA

Scope and objective behind Section 44ADA

Section 44ADA is a special provision for calculating the profits and gains of small professionals in specific conditions. Section 44ADA was acquainted with expand the scheme of improved on presumptive taxation to determined professionals.

Prior, the presumptive scheme of tax was material just for small business. The presumptive scheme of taxation lessens consistence trouble on small callings and works with ease of doing business. Under the presumptive scheme of taxation, profits are assumed at half of the gross receipts.

Implications of preferring section 44ADA

All deductions for business expenses are deemed to have been permitted. Whenever profits are taxed at half of the gross receipts, the balance half is deemed to be permitted towards all the business expenses of the assessee.

Business expenses may incorporate consumables, cost of services taken from another expert, day by day expenses, books, stationery, telephone charges, depreciation on assets (laptop, vehicle, printer and so on) and some other cost caused to carry on the calling.

The written down value (WDV) of assets for tax reason will be determined as of the depreciation has been permitted every year. This WDV would be the value of the resource for tax reason for a situation where the resource is sold later by the assessee.

Presumptive income provided

For example: Mr. Smash is a freelance interior decorator. His complete receipts for the financial year 2018-19 are Rs 30 lakh. His yearly expenses are Rs 10 lakh towards rent, transport, telephone, voyaging and so forth Here, we can look at his taxable pay under ordinary provisions and presumptive scheme as beneath:

Under ordinary provisions

Gross receipts   - 30,00,000

Less: Expenses - 10,00,000

Net benefit        - 20,00,000

Under Presumptive scheme

Gross receipts                         - 30,00,000

Less: half deemed expenses - 15,00,000

Net benefit                               - 15,00,000

In the above case, the net benefit under the presumptive scheme is lower than the ordinary provisions. Thus, it is gainful for Mr Ram to offer his pay under the presumptive scheme of taxation under section 44ADA.

Calculation of Income Tax for Freelancer

Income earned by a freelancer is categorized under the head of 'Business & Profession'. As freelancers mostly receive payments online, it is easy to calculate gross income. Financial year for the calculation of gross income is 1st April of current year to 31st March of next year. Loans taken for any reason are not counted as income.

The expenses paid for maintaining business are to be deducted from the gross income. The most common expense that every online freelancer can deduct is internet expense. Freelancers working online can also deduct depreciation of their PC/laptop and other gadgets used in the business.

The excessive amount will be the profit which is taxable.

(Also Read: Income Tax slabs for FY 2020-21)