Freelancing — the word rings in the thought of working at your convenience, setting up shop anywhere, and direct exposure to clients. Freelancers get paid based on their contract and may also incur expenses in carrying out the assignment. Keeping track of payments from multiple assignments and hence paying taxes can sound cumbersome, so we got tips ClearTax Founder and CEO Archit Gupta to simplify the process, and tell us how freelancers can easily file taxes. Keeping track of income If you are a freelancer, you may receive payments on an assignment basis or every quarter or month, based on your contract. The receipts constitute income from professional services. You will need to aggregate their invoices to find the gross income from freelancing. As a freelancer you can claim deductions for expenses from the gross receipts, thereafter. Professional receipts above Rs 30,000 per financial year may face TDS deduction. This is deducted at 10% tax at source (from your client) whenever the payment is made to you. The deducted TDS is deposited on behalf of the freelancer by the payer. You can claim this back when you file tax returns. The TDS rate is 7.5% for professional fee transactions from 14 May 2020 until 31 March 2021. The accrual and cash methods As a freelancer, you should maintain books of accounts containing a record of your income and expenditure. Or you could get ta professional account to choose between two methods of accounting — accrual method and the cash method. In the accrual method, the income and expense get recorded once they become due. Accrual accounting is irrespective of the actual receipt or payment. However, in the cash method, the accounting is based on actual receipts and payments. Paying your taxes From a tax perspective, the method of accounting, once chosen, should be consistent for each year and for the entire freelancing income. It is great to keep a tab on your income from the word go. In the accrual method, your tax liability arises in the year in which you raise the invoice or book the expense. In the cash method, tax liability arises in the year in which you receive the money. Likewise, under the cash method, you can claim a tax deduction for actual payments in the financial year. A few examples of expenses a freelancer can claim tax credit for: Rent for the premises (work area) Travelling and conveyance charges Costs incurred to carry out repairs to your premises, computer, printer or vehicle Depreciation on any assets such as a computer, chairs, desk, printer or vehicle Insurance costs, meals and other hospitality costs Business promotion costs. Any amount incurred to render freelancing services If a freelancer’s cost is for both personal use and professional use, a deduction is available for the portion attributable to the professional use. An example is the cost of running and maintenance on a vehicle used for personal and professional purposes. You cannot claim a deduction for personal expenses such as […]
Click here to view original web page at www.lifestyleasia.com
