Freelancers, Hidden Tax Rules Revealed! Are You Missing Crucial Income Tax Filing Deadlines?

Author

Abhay Singh | Whalesbook News Team

Detailed Coverage:

The Income-tax Act broadly defines 'business' under Section 2(13) to include almost any trade or professional service, meaning income from freelancing activities like tutoring, content creation, design, consulting, or coding is generally treated as business income. This triggers tax obligations once certain thresholds are met.

To simplify compliance, the Presumptive Taxation Scheme is available. Under Section 44AD, freelancers with an annual turnover up to ₹3 crore (with 95%+ digital receipts) or ₹2 crore (if cash receipts exceed 5%) can declare 6% of digital receipts or 8% of cash receipts as income. For specified professions like technical consultants and film artists, Section 44ADA allows 50% of turnover to be treated as income, applicable for turnovers up to ₹50 lakh (or ₹75 lakh if 95%+ receipts are digital).

Mandatory filing requirements vary significantly based on the tax regime (new or old) and the nature of receipts. For instance, under the new tax regime, filing might be mandatory with a fully digital turnover of ₹66.66 lakh, while cash receipts could trigger it at ₹50 lakh. These limits change if the individual has other income sources like salary, interest, or capital gains.

Tax planning is essential for freelancers with multiple income streams, as emphasized by experts like O.P. Yadav. Key priorities include legally reducing tax, avoiding interest by paying advance tax on time, and ensuring accurate reporting to prevent penalties. Gond highlights that presumptive schemes simplify compliance, and for investment income, understanding long-term capital gains (assets held over 12 months) and reinvestment options (Sections 54, 54EC, 54F) can further reduce tax liability.

Impact: This news has a significant impact on individual taxpayers, particularly freelancers in India, by clarifying their tax obligations, simplifying compliance through presumptive schemes, and guiding tax planning strategies. Understanding these rules can help them avoid penalties and optimize their tax liability. Rating: 7/10

Difficult Terms: Business: Under Section 2(13) of the Income-tax Act, 'business' is defined broadly to include any trade or profession. Presumptive Taxation Scheme: A scheme for taxpayers to declare income as a fixed percentage of their turnover, simplifying tax compliance instead of maintaining detailed books of accounts. Turnover: The total value of sales or services provided by a business during a specific period. Digital Receipts: Payments received through electronic means like bank transfers, UPI, credit/debit cards. Cash Receipts: Payments received in physical currency. Basic Exemption Limit: The minimum amount of income that is not taxed. Specified Professions: Certain professions listed under Section 44AA of the Income-tax Act, which are eligible for specific presumptive taxation rules. Tax Regime: The set of tax laws and rules applicable to a taxpayer, such as the new tax regime or the old tax regime. Advance Tax: Tax paid by the taxpayer during the financial year on their estimated income, rather than at the time of filing the tax return. Capital Gains: Profit made from selling a capital asset (like stocks, property) for more than its purchase price. Long-Term Assets: Capital assets held for more than a specified period (e.g., 12 months for listed securities), attracting different tax treatment compared to short-term assets.