Taxation of freelancers and consultants in India, governed by the Income Tax Act, 1961, is critical as the freelance economy grows—30% of professionals were self-employed in 2024, per IBEF. Understanding tax obligations is important. How are freelancers taxed, and what are the compliance steps? Let’s break it down.
Understanding Tax Slabs & Presumptive Scheme:
Taxation for freelancers and consultants in India starts with choosing between the old and new tax regimes. Under the new regime (FY 2025–26), the government introduced a zero-tax slab up to ₹12 lakh, thanks to a ₹75,000 standard deduction—so incomes up to ₹12.75 lakh may be tax-free. Above this, the slabs are:
- ₹12–16 lakh: 15%
- ₹16–20 lakh: 20%
- ₹20–24 lakh: 25%
- Above ₹24 lakh: 30%
Meanwhile, the old regime retains familiar slabs (5%, 20%, 30%) but allows deductions under Sections 80C–80U. Freelancers must assess which regime yields more savings, especially since regime choice isn’t annually flexible for self-employed individuals.
Key Deductions & Tax-saving Options:
In the old regime, deductions can significantly ease taxation of freelancers and consultants in India. You can claim expenses wholly and exclusively used for business, like internet, phone, rent, and equipment under Section 37(1). Further, deductions under Section 80C (₹1.5 lakh), Section 80D (health insurance up to ₹25 k), and Section 80CCD(1B) (NPS ₹50 k) help lower taxable income . However, remember advance tax is payable quarterly if your liability exceeds ₹10 k .
GST, TDS & Professional Tax Compliance:
GST applies if you earn over ₹20 lakh annually (₹10 lakh in special states). You’ll charge 18 % GST and file returns monthly or quarterly. Exporting services allows zero-rated GST under LUT. Never forget TDS: payments to you above ₹30 k may have 10 % withheld under Section 194J . Plus, state-level professional tax may apply (e.g., Maharashtra) . Therefore, keep records and handle compliance proactively.
Filing the Right ITR Form:
Filing correct ITR ensures smooth taxation of freelancers and consultants in India compliance. Choose ITR-4 (Sugam) if under presumptive scheme. Opt for ITR-3 if your actual expenses exceed 50%, and you maintain detailed books. The return deadline for AY 2025-26 is Sept15, 2025 . Additionally, cross-border earnings—like from Oman—must consider DTAA and foreign tax credit.
Conclusion:
Taxation of freelancers and consultants offers flexibility through presumptive schemes but requires diligent compliance to avoid penalties. With clarity and simple accounting, you can reduce compliance headaches and focus on growth. In addition, proper planning and CA guidance can save time and money. Ready to streamline your taxes? Explore more financial insights now!
– Ketaki Dandekar (Team Arthology)
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