Freelancing is a business and the way you will handle your taxes working as a freelancer will be different than someone who is solely employed by a corporation. If you are working full-time as a freelancer, whether it is as a computer consultant, writer, artist or any other job, there are several things to keep in mind.
Income tax is a statutory liability of those persons who make more income. The employees make income from salary and freelance work requires different approach for tax filing. If the freelance income is derived in their name, but not in the name of any company or firms registered, the following methods can be suitable to adopt.
How Bloggers / Freelancers Calculate Taxable Income for Income Tax Purpose
Step 1: Calculate your total revenue earned
In India, financial year starts from 01 April and ends on 31 March. So, for income tax purpose, you need to calculate the overall income you’ve earned between 01 April to 31 March.
Total revenue calculation is done after the financial years ended (i.e. after 31 March). You need to pay your income tax before 31 July — so you need to do all the tax calculations sometime between 01 April and 31 July.
Step 2: Calculate your expenses
As a full-time blogger/freelancer, you are considered to be running a business. Businesses earn revenue but they also have certain expenses. You need to pay income tax only on the net profit your have made in previous financial year. In order to calculate profit, you would need to calculate total expenses that you incurred in earning your revenue.
Step 3: Deduct expenses from revenue to get net profit
Now that you have added up both your total revenue and total expenses, it is time to find out your net profit. For this, simply subtract expenses from revenue.
profit = revenue – expenses
Step 4: Subtract the deductions allowed from your net profit
Are you liable to pay income tax on the entire net profit? No!
There is a list of deductions allowed according to the Section 80 in Income Tax Act, which applies to every individual calculating their taxable income. So, as a blogger / freelancer, you can also avail of these deductions.
At present you can save tax on Rs. 1,50,000 under various deductions allowed under Section 80. You can make specific investments of up to Rs. 1,50,000 and save tax on this amount.
So, if you really make these investments, you can further subtract Rs. 1,50,000 from your net profit to get your final taxable income.
Final Taxable Income = Revenue – (Expenses + Various Deductions)
We recommend that you consult a good financial advisor in order to take the proper benefit of the deductions allowed.
Step 5: Now, dear blogger, calculate your income tax!
Finally, it’s time to calculate your income tax liability. At present, Indians need to pay income tax according to the following slabs. Please note, that these slabs and tax percentage are altered from time to time (especially in the General Budget of India).
If you are a full-time blogger or freelancer, you need to fill ITR-4 while filing your income tax return. ITR-4 is meant for professionals and business persons.
If you are a part-time blogger or freelancer then you must be file ITR for your overall income. You can just show your income from blogging and freelancing as income from other sources in the ITR you already file.