ITR filing for freelancers: Form, foreign expenses, tax deductions, deadline — All FAQs answered

The August 31 ITR deadline is just days away, prompting many freelancers to wrap up their income tax return (ITR) filing process. Unlike salaried employees who receive a From 16 from one employer, freelancers often earn money from multiple clients and projects.

This makes the tax filing process slightly more complicated for freelancers, hence must choose the right ITR form, accurately report foreign expenses and claim eligible deductions. Here are some key questions answered to help freelancers complete their ITR filing correctly.

Which ITR form is meant for freelances?

Any income generated through freelancing is treated as carrying on a profession or business under the Income-tax Act. The applicable tax return form depends on how they report their income in a financial year.

• ITR-3: Applicable to freelancers maintaining regular books of account.
• ITR-4: Applicable to eligible professionals opting for the presumptive taxation scheme under Section 44ADA.

Taxpayers who are not required to get their accounts audited, must file their tax return within the due date to avoid penalties and other consequences.

How is freelance income taxed?

Freelance income is generally taxable under the head “Profits and Gains of Business or Profession” (PGBP) of the income tax form. This applies to every individual with an independent profession, consultancy or business activity.

Such a taxpayer’s net taxable income is calculated by deducting eligible business expenses from their total earnings. Other sources of income like rent, interest, dividends, or capital gains are taxed under their respective heads and added to the freelancer’s total income.

Deductions available to freelancers

Unlike salaried individuals who can claim a standard deduction of up to ₹75,000 based on their chosen income tax regime, freelancers do not have that option.

But can claim actual business-related expenses, which includes:

• Internet and mobile bills
• Stationery and printing costs
• Conveyance costs.
• Proportionate rent and electricity (if they are working from a rented space)
• Depreciation on computers, printers, and other office equipment

Like salaried taxpayers, freelancers also have the benefit of deductions under the old tax regime for sections such as:

• 80C: Investments in Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), life insurance, etc.
• 80CCD: National Pension Scheme (NPS) contributions
• 80D – Health insurance premiums
• 80TTA – Interest on savings accounts
• 80GG – Rent deduction (up to ₹5,000/month) if not already receiving House Rent Allowance (HRA)

Should you report foreign income?

Some freelancers also work for foreign clients, providing services such as consulting, writing, design, IT development and digital marketing. Generally, they receive income for these services in foreign currency, which is fully taxable in India if the professional is a resident for tax purposes.

Foreign income should be first converted into INR and reported accurately, along with proper supporting records, said Pranav Sai S, tax expert at ClearTax.

When do you pay advance tax?

If you have income from foreign clients, then advance tax also becomes applicable when the total tax liability for the year exceeds ₹10,000 after adjusting any tax deducted at source (TDS).

Since foreign clients generally do not deduct Indian TDS (tax deducted at source) from freelance payments, the freelancer is usually responsible for estimating and paying tax during the year, the tax expert said.