Freelancer or Consultant? Here's how to file Income Tax Return in India | ITR 2023

Summary

The video script outlines the unique tax filing process for consultants and freelancers, who are considered self-employed. Unlike salaried individuals, they must file ITR forms 3 or 4, without the standard deduction of 50,000 rupees. They can opt for presumptive taxation under certain conditions, allowing tax payment on half their annual income. It emphasizes the importance of reporting all transactions, including those without TDS, and claiming eligible business expenses for accurate tax computation.

Takeaways

• 📊 Consultants and freelancers are considered self-employed for tax purposes and must report their income as business income.
• 📋 Unlike salaried employees, they cannot file ITR-1 or ITR-2 forms; they need to file ITR-3 for professional income or ITR-4 for presumptive taxation.
• 🚫 They are not eligible for the standard deduction of 50,000 rupees and cannot change tax regimes annually like salaried employees.
• 💡 Under the presumptive taxation scheme, freelancers can pay tax on only half of their annual income, with benefits under Section 44AD and Section 44AE.
• 💼 The presumptive taxation scheme is applicable to creative professionals with an annual income less than 50 lakh rupees.
• 🔒 Payments to consultants or freelancers usually attract a flat 10% TDS, which is reflected in their annual tax statement.
• 📝 It is crucial to include all transactions in the tax statement, even those where TDS was not deducted or paid.
• 💼 Freelancers can claim deductions for expenses such as office rent, electricity, travel, telephone, internet, and depreciation on assets like laptops, phones, and cars, with proof of payment.
• 📖 For a detailed guide on filing ITR for freelancers, professionals, or consultants, refer to the full story on business-hyphenstandard.com.
• 🔄 Freelancers and consultants should ensure they follow the correct steps to file their income tax return to avoid discrepancies and penalties.

Q & A

What is the tax filing difference between consultants and freelancers compared to salaried employees?

Consultants and freelancers, being self-employed, file their income as business income and are eligible for certain business deductions, unlike salaried employees.

Which ITR forms are consultants and freelancers required to file?

Consultants and freelancers need to file ITR form 3 for professional income and form 4 if they opt for the presumptive taxation scheme, unlike salaried taxpayers who file ITR 1 or ITR 2.

Are consultants and freelancers eligible for the standard deduction of 50,000 rupees?

No, consultants and freelancers are not eligible for the standard deduction of 50,000 rupees that salaried employees can claim.

Can consultants and freelancers switch tax regimes every year like salaried employees?

No, consultants and freelancers cannot switch tax regimes every year, which is an option available to salaried employees.

What is the presumptive taxation scheme and who is eligible for it?

The presumptive taxation scheme allows freelancers and consultants to pay income tax on only half of their gross annual income, with benefits under Section 44AD and Section 44AE, provided their total annual income is less than 50 lakh rupees. Creative professionals like architects, interior decorators, advertisers, and technical consultants are eligible.

What is the typical TDS rate applied on payments made to consultants or freelancers?

A flat 10% TDS is typically applied on payments made to consultants or freelancers.

Why is it important for freelancers to include all transactions in their tax filing?

It is important because the annual tax statement may not have complete details, and including all transactions ensures that no income is overlooked, including those where TDS was not deducted or paid.

What types of expenses can freelancers claim as deductions?

Freelancers can claim expenses such as office rent, electricity, travel, telephone, internet, and depreciation on assets like laptops, phones, and cars, provided they have proof of payment.

Where can one find a step-by-step guide on how to file income tax returns for freelancers, professionals, or consultants?

A step-by-step guide can be found on business-hyphenstandard.com in the full story by Sunella.

What are the benefits of the presumptive taxation scheme for freelancers and consultants?

The presumptive taxation scheme offers benefits such as simplifying the tax filing process and allowing for lower tax payments based on half of the gross annual income, provided certain conditions are met.

How does the presumptive taxation scheme affect the tax liability of creative professionals?

Creative professionals can benefit from the presumptive taxation scheme by potentially reducing their tax liability, allowing them to pay tax on only a portion of their income, given they meet the eligibility criteria.