Ever since the pandemic hit us, the combination of job losses and the idea that full-time work takes up too much of our time, has resulted in the rise of freelance work. Easy access to social media has also enabled many to earn money by creating content on their channels on digital platforms. On the other hand, the rise of product companies such as Uber, Swiggy, Urban Company, Zomato, Dunzo, Ola and many more has created a whole new class of workers - gig workers.
The question is - how do taxes work for these people? They’re not salaried people, but they too make money - sometimes much more than those who get regular paychecks. They don’t have to clock in regular hours, and they’re not eligible for perks such as EPF mandated under the Company Act. Their taxable income comes under the purview of “Profits and Gains from Business or Profession” according to the income tax laws of India.
Your gross income will be the aggregate of all receipts you get in the course of carrying out your profession. Your bank account statement is a document you can rely on to cull out this information, provided that you have received all your professional income through banking channels.
What is Section 44ADA and how does it work?
As of financial year 2016-2017, under the presumptive scheme of taxation, profits are presumed at 50% of the gross receipts for non-salaried professionals. Anyone whose total gross receipts are under Rs.50 lakh, file their taxes under this.
Under 44ADA, you only show 50% of your revenue as income, irrespective of your profit. Earlier, the IT department would decide your tax slab based on how much profit your work generated yearly.
So under the earlier method, a person whose yearly revenue was Rs.40 lakh, and expense was Rs.10 lakh, would fall under the Rs.30 lakh p.a. tax bracket.
But with 44ADA, they can simply half their revenue, and thereby pay income tax only on the taxable part of Rs.20 lakh.
Okay, but what about deductions?
Ah yes, deductions a.k.a. your annual BFFs during tax-filing season. Like we said earlier, unlike salaried people, freelancers and gig workers cannot claim EPF under deductions. However, depending on the kind of work you do, there are certain expenses you can file under full or partial deductions.
Content Creators, gig workers, freelancers can deduct expenses such as
Camera (and related equipment)
Paid software used for creating/editing/recording
Site maintenance cost
Rent (in case you’re renting the space where you’re creating the content)
Travel expenses in case you’re traveling for work
Automobile purchase and maintenance (if used for work)
Mobile and internet bills (partially if used for both personal and professional purpose)
Office supplies, such as printers, scanners, routers, external hard drives
When you buy a capital asset, for work, such as a laptop, camera or a bike, the benefit of such an asset is usually expected to last more than a year. Such assets are capitalized and not charged to expenses when they are bought. However, every year a small portion of its cost is expensed and is allowed to be reduced from your income. This expense charged every year is called depreciation.
For example, when you buy a laptop for Rs.60k to do your freelance work, the Rs.60k will be considered as your asset. Assuming a straight line depreciation of 33.33% each year, Rs.20k shall be charged as expenses yearly. In the next 3 years, we would consider the asset to be fully depreciated.
This is not an exhaustive list. For a more detailed idea about what you can fully or partially deduct as an expense, it would be a good idea to get in touch with a CA, especially one who is used to filing taxes for freelancers.
(This article on personal finance is part of The Quint's 'Save and Grow' campaign)