India’s 16 million freelancers, is second only to that of the USA. The Indian subcontinent has a large bi-lingual, English speaking population of freelancers.
They work mainly in the computer technology, telecommunication, and virtual service industries. However, unlike their US counterparts, the Indian freelancers offer their services at a budget price.
Their affordable labor attracts large corporations and startups, which either set shop in India, or choose to hire them through platforms such as Upwork.com, Guru.com, or Freelancer.com.
If you are planning to start freelancing in India from 2020 and beyond, this Indian freelancer guide is for you. You will discover how to pay your taxes and register as a freelance worker.
In India, you are a freelancer, if you work for organizations or companies, on short contracts. However, if you work for private individuals such as homeowners, you are self-employed.
Overall, freelancers have no commitment to work solely for one company or organization. If they do, they are employees on contract.
You need to have a work visa in order for you to work in India, and you must obtain it before you come to India. The exception is if you or your spouses are of Indian descent.
Freelancers of Indian descent, you can get an entry visa that lasts for six months. That visa will also allow you to work as a freelancer in India. Everyone else needs an employment visa, to work in India.
To get an employment visa, you need at least a signed work contract with an Indian company. The contract should have a fixed-rate pay or salary for a specified period.
If you are Bhutan and Nepalese freelancer, the visa requirements do not apply to you. You do not need to apply for a work visa, to freelance in India.
Once you get an employment visa, you can come to India and set up a firm offering your freelance service. Your firm needs to have a Memorandum of Articles of Association.
The Memorandum of Articles of Association must be approved by the Superintendent of Stamps. You can then forward your firm’s name to the Registrar of Companies for approval.
Once the Registrar of Companies approves your firm, you can focus on growing your freelance business. Overall, it can be easier to get an attorney or immigration agent to help you get a work visa, and set up your freelance business.
The Indian government expects you to pay your taxes as a freelancer, and file your taxes at the Income Tax Department’s online portal. In case your clients deduct the tax at the source, then you can claim a tax deduction when filing your taxes.
Your income as a freelancer in Indian falls under “Business and Profession” income. Some of the sources that fall under that category of freelance income include:
To pay your taxes on your freelance income in India, all you need to do is calculate your gross income. You then deduct any deductible business expenses. You can then calculate the tax due using the applicable income tax rates. Loans do not qualify as a source of income, so exclude them.
You must calculate your taxable income from 1 April of the previous calendar year, to the end of 31 March of the current calendar year. That means you can start filing your taxes from the 1st of April of the current year.
You must also include other sources of income, apart from those of your freelance income, in your Income Tax Return (ITR) 4 form. These may include income you may have gotten from other investments or income-generating activities.
You can deduct any expense that you incurred in order to deliver services to your clients. However, the expenses should be legal, properly documented, and not for personal purposes.
These deductions include:
You can deduct up to Rs 1.5 Lakhs under Section 80C, for payments you have made towards tuition fees, residential property investment, life insurance policy fees, and provident funds.
You can deduct a maximum of Rs 1.5 lakhs, for any investment towards a pension plan.
Any contribution towards Central Government Pension Schemes, which do not increase your income by 10% or more, is deductible. These can be those you have made or those that your client has made.
Under Section 80 CCF, you can deduct up to Rs 20,000, for any investment you make in the Government of India’s long-term infrastructure bonds.
The government of India has Equity Saving Schemes for Indian citizens and residents. You can deduct a maximum of Rs 25,000 if you have invested in them.
As a freelancer, you can make deductions for every health insurance policy you take for yourself, child, or spouse,
You can deduct up to Rs 1.25 lakhs, for treatment for normal and severe disabilities.
If you have a special disease that you are treating, you can deduct those expenses under Section 80 DDB.
You may deduct loan payments that you took to advance your education, under Section 80 E.
Under Section 80 EE, you can deduct a loan you took as an individual (does not apply for businesses/companies), to buy your home.
Freelancers can also deduct up to 100% of any charitable contributions, under Section 80 G. These include Prime Minister Relief Fund, National Defense Fund, and others that are registered or recognized by the government.
You do not need to pay tax on TDS income, instead, you fill Form 26AS to claim a deduction. You are entitled to a TDS deduction to avoid double taxation.
If your freelance income is less than Rs 50 Lakhs in a year, you can now pay Presumptive Tax. You can file it under the “Business and Profession” head.
You calculate the Presumptive Tax at a rate of 8%, of presumptive income. In that case, an income of Rs 50 Lakhs, you will pay a Presumptive Tax of 4 Lakhs.
Moreover, under section 44AD of the Income Tax Act, the presumptive assumption rate is 50% for freelancers and other professionals. That means if you had Rs 1000 turnover, your assumed profit is Rs 500.
As a freelancer, to file presumptive tax under section 44AD and 44AE of the Income Tax Act, you use the ITR Form 4S.
If your freelance tax liability exceeds Rs 10,000, you need to pay the Advance Tax. For instance, you may need to pay your taxes quarterly, instead of annually.
Under section 234 B and 234 C of the Income Tax Act, you can be charged some interest on your final tax, for failure to remit it after it exceeded the Rs 10,000 limit.
The auditing of taxable income falls under section 44AB of the ITR law.
You do not need to have your income audited if it is less than Rs 1 Crore, and you can submit it at the latest on July 31.
You must have your income audited if it is equal to Rs 1 crore or more. Moreover, you must file your ITR no later than the 31st of September.
As a freelancer working in India, having a contract is not only legal, but we recommend it. A business contract between you and your clients protects both of you legally and helps to prevent misunderstandings.
While there are many aspects of your work that you can specify in your contract, we are going to look at the basics.
Before you start work, especially if you are not working on a freelance platform, you need to have a signed contract. You can opt to meet clients physically and sign your contract, or use of digital contracts, which you can both sign online.
You need to have a contract that clearly states whom you are doing business with, and where they are located. That can include their legally registered business/company name, company email/physical address, phone contacts, tax number, among other legal business details.
Your contract should state the scope of work you are going to undertake when you expect to get paid. It should also state what the client’s input will be, and when they should give it. The contract should also offer cancellation options for you and the client.
There should be a clear deadline when you must deliver the work, and whether you are going to bill the client hourly, weekly, monthly, or per project. Furthermore, the contract should give a clear schedule of how payments are going to be made.
This can be in a lump sum, periodically, or after a milestone has been achieved. In case there are revisions, or additional work, the contract should be clear on how they are going to get billed. You must also specify how you will pay taxes to India’s Income Tax Department.
Your contract should state how confidential the project is, what can be shared with third parties and cannot be shared with entities who are not a party to the contract.
Depending on your profession, getting credit for your work may be important for you, even when you get paid for it. In that regard, you should discuss it with your client, and include a clause about it in the contract.
Your contract should state how free you are to engage or work with other parties, who may be considered to be competitors of your client. That may limit you from getting additional work, while the project is ongoing or while the client is in the business.
A contract is a legally binding document, and you must consider all aspects of your work and career plans before you sign it. While there are many freelance contract templates online, not all are tailored for the Indian freelance market or business laws.
In that regard, getting your lawyer in India to create a favorable template for you is recommended. Overall, once you sign a contract with your client, they can use it against you in a court of law, just as you would.
Therefore, you must be ready to commit to every word in it, once you sign it.
India has a huge number of freelancers, and the government has enacted laws to make sure they pay their taxes fairly. To start your freelancing career in India, the first step is to register your profession/business.
That will allow you to open a bank account, or register with payment processes such as PayPal, Payoneer, and Skrill. You will also be able to file taxes, claim deductions, and grow your business legally.
Overall, making sure that you meet all legal requirements to work in India is essential to succeed as a freelancer in India. Moreover, there are numerous tax benefits when you legally do your business in India.
We hope that you found this guide to be informative, and you will enjoy your freelancing career in India.
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