Freelancers and contractors face unique challenges when it comes to taxation compliances compared to salaried individuals. Here’s a breakdown of their common questions and tax-saving strategies:

Common Questions for Freelancers & Contractors connected with Income Tax & GST

• Which ITR form should I file? – The appropriate form depends on your income sources (domestic/foreign), expenses, and turnover. You might need ITR 3 or ITR 4. Generally ITR 4 suits to almost all the freelancers. Further, you can take advantages of Lump-sum return filing advantage by applying Section 44AD or 44ADA.
• How do I track my income and expenses? – You should maintain google sheet or any online sheet which can easily be accessible. Initially you need to maintain invoices which shall include date of invoice, Party name, Location, Invoice Value, Tax etc. For Expense purpose you can maintain separate sheet which shall include date of expense, amount, name of the company, nature of expense etc.
• What expenses can I claim as deductions? – You can deduct legitimate business expenses like internet bills, office rent, travel for work, equipment, and professional fees, fuel, etc. Further, you can claim depreciation for the assets you are using for business purpose like Mobile phone, TV, Air-conditioner etc. (also you can claim GST Credit in case you are registered under GST)
• Do I need to pay Goods and Services Tax (GST)? – If your turnover exceeds Rs. 20 lakhs in case of Services or if it exceeds 40 lakhs in other cases, you might need to register for GST. Further, remember one more thing, If you are doing business from online and you are working for foreign clients in that case take GST number without turnover limit as this will give you refund for export business you are doing.  Not only that, you can get benefits by selling meis scrips. Don’t get confuse here, take advise from your CA or book your consultation call.
• How do I handle TDS (Tax Deducted at Source)? – Clients might deduct TDS from your payments. Ensure you receive Form 16 and claim the deducted TDS in your ITR. If you have not received form 16 yet, don’t worry. You can still check the amount of tax deducted from Form 26AS. You can easily download form 26AS from Income Tax Website.
• Do I need to pay advance tax? – Yes, if your tax liability is likely to exceed Rs. 10,000, you need to make estimated tax payments throughout the year. If this sounds complicated or difficult to remember, subscribe to our tax-due date calendar.

Best Tax Saving Strategies for Freelancers & Contractors:

• Maximize Deductible Expenses: Keep detailed records of legitimate business expenses to reduce your taxable income. See here, your net profit is taxable and not your gross income. e.g. If I earn 1 lakh and if i have incurred 40 k for business purpose, only 60 k will be considered my net profit and tax will be applicable on 60 k and not on 1 lakh.
• Utilize Presumptive Taxation Scheme (Section 44ADA or 44AD) :
  Section 44ADA (applicable only for professionals) : If your annual turnover is less than Rs. 50 lakhs, you can opt for 44ADA scheme and pay tax on a presumed income (50% of gross receipts).
  Section 44AD (applicable only to person other than professionals and commission agents): If your annual turnover is less than Rs. 2 cr , you can opt for 44AD scheme and pay tax on a presumed income (8% of turnover), further if you have collected money in digital mode than you have to show only 6% net income for the amount collected via digital mode.
• Invest in Tax-Saving Schemes: Utilize investment options like PPF (Public Provident Fund), ELSS (Equity Linked Saving Schemes), NPS (National Pension System) to claim deductions under Section 80C. You can claim your kid’s school fees, Your housing loan repayment etc.
• Claim Health Insurance Premiums: Deduct premiums paid for health insurance for yourself, spouse, and dependent parents under Section 80D.
• Invest in Skill Development: Deduct expenses for skill development courses relevant to your profession under Section 80CCC.
• Maintain Proper Records: This simplifies tax filing, reduces errors, and avoids scrutiny from tax authorities.