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Are you a freelancer providing services to clients outside India? Here is your income tax guide

Introduction: A freelancer is a self-employed person who works for clients on a project/assignment-basis or on a retainer for providing a specific pre-decided set of services. Mostly the fields in India where freelancing is popular include writing, accounting, photography, web development, architecture, digital marketing among others. 

Usual tax rules for freelancers: As per the Income Tax Act, whatever income you earn as a freelancer in India is counted under the head ‘Profits and Gains of Business or Profession’. If your turnover or gross receipts in a financial year are more than ₹50,00,000, you will need to be on top of things as far as the books of accounts are concerned. You will also need to get these books audited. If the gross receipts are less than ₹50,00,000, then you can follow a presumptive taxation system. 

Presumptive Taxation for Freelancers: This method relieves you of the difficult task of bookkeeping by keeping the presumed figure at 50%. This means that under the presumptive scheme of reporting income, you can presume that half of your gross receipts are to be considered as income when you compute the Income Tax.

What if you have overseas clients?
What happens in case you are working for clients abroad? If you earn income from clients who are based overseas, you may receive the money as a direct remittance to your bank account or via such services like PayPal. Two cases are to be noted here:

a. If the money you have received was already subject to a tax deduction at source, then you will not have to charge it as taxable income. This is because of the provision of the Double Tax Avoidance Agreement (DTAA). If the receipt you get has already been treated for tax at source and then you end up paying tax in India too, it will get taxed twice. The DTAA is signed between India and 80 countries to prevent this from happening. All in all, your money has to be taxed either in the source country or in the country of residence. With that principle in mind, you do not have to add it to taxable income if TDS was deducted in the source country.

  • In case the TDS was not deducted in the remittance, you will treat this income just like you would treat any other income you earn as a freelancer, irrespective of the geographic boundary it is being transferred from. Thus, your professional fees from the foreign client are to be treated just like any money you earn locally. 

As a rule, the process involves adding up all the revenue - whether from clients in India or abroad and adjusting for expenses incurred in freelancing to arrive at the final figure of your freelance income. 

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