How To Freelance In India — 9 Things You Should Know
Freelancing has come a long way from being a side hustle to a preferred type of employment for a significant number of people in India.
The freelance economy in India is part of the wider structure known as the gig economy. The task-specific and on-demand nature of work is the most attractive USP for both the parties (employers and employees). Apart from freelancers, the gig economic structure subsumes self-employed professionals, part-time workers, and anyone who prefers to work remotely.
The latest trends depict how freelancing in India has taken wings, especially in engineering & technology profiles.
But, how is freelancing the future?
Before getting into the nitty-gritty, you might question “why freelancing?”
Freelancing can offer multiple advantages to both professionals and companies.
The current dynamics have left most organisations cash-crunched & growth hungry. We all know setting up and office space & employing full time professionals comes with many legal formalities and added expenses. Hence, many organisations have started hiring freelancers or contractors as they require less supervision, paperwork, and expenses, thereby saving costs.
Further, the COVID-19 pandemic has necessitated companies and professionals to operate remotely. While this situation has affected the world economy, on the flip side, it has also highlighted the benefits of remote working. As freelancers and contract workers were used to operate in this model, many companies hired them instead of full-time professionals who would need training for the same.
In the case of professionals, freelancing gives them the opportunity to gain expertise and expand their knowledge as they get to work for different organisations and projects. The professional freedom, flexibility, and wider choice, are additional advantages.
How to get started as a freelancer in India?
In India, if a person engages in trade, profession or business, they have to obtain a license from Municipal Corporation. Freelancers do not need a business license in India. Based on your interest or expertise, you can start freelancing and charge clients with a combination of industry standards and the experience you bring to the table.
In the case of foreign nationals living in India, there is no special category of visa for freelance work. They must, however, have a job in a company through which they have obtained an employment visa (making freelance as their part-time job) or married to an Indian national. For contract or consulting work that is in progress, one can obtain an employment visa without being an official employee of a company by creating a firm in their name and getting it approved from the Registrar of Companies (ROC).
What is the eligibility criterion to become a freelancer?
Freelancing work in India requires the fulfilment of the following conditions:
• Above 18 years of age. However, as per law, a child over 14 years of age can be employed in non-hazardous occupations (such as helping family, the entertainment industry, advertisements, or sports) without hampering their schooling and education
• A person is not barred from rendering or receiving services under the law
• Holds a Permanent Account Number (PAN) for recording taxes, income and transactions
How to get freelance projects in India?
India is the second-largest freelancing market in the world after the US and packs more than 16 million freelancers. Inevitably there is innumerable competition, so getting started as a freelancer is no piece of cake!
While the traditional freelancing websites, social media platforms, and word of mouth are popular lead generation methods, they come with their own set of uncertainty in generating positive results. Associating with brands like Skuad, Upwork, Fiverr can help in spotting freelancer opportunities, making it easy, direct, and immediate.
What payment channels can be used for freelance work in India?
Generally, freelancers receive payments directly in their bank accounts as it is safer; therefore only providing a bank account number and IFSC code to clients is sufficient.
IMPS and NEFT are the most used modes of transactions. NEFT transactions can take more than 24 hours whereas IMPS transactions are instant with bank charges towards the payer.
E-wallets such as Paytm, GooglePay, Mobikwik, Phonepe and BHIM UPI are also being actively used in current times to process smaller transactions as these are instant and charge-free.
How can freelancers plan their finances & save taxes?
A freelancer needs to file taxes, irrespective of the source of income, i.e., domestic or foreign.
The freelance income tax process is slightly complicated as compared to salaried individuals. This is because freelancers derive the income from multiple sources and have to follow additional steps to file income tax returns.
Nonetheless, freelancers in India can save taxes by showing deductions and expenses incurred for carrying out assignments with valid proofs.
Taxable Income & Tax Liabilities:
Although income generated by a freelancer is taxed under “Income from Profession”, a freelancer is taxed within the same brackets as a salaried employee. This means freelancers who earn more than ₹250,000 ($3,400) per year are taxed.
Starting with the financial year 2020–21, The Indian government has proposed a “New Tax Regime” in addition to the existing, i.e. Old Tax Regime.
As a freelancer, you can choose between the two regimes depending on what is most suitable from a tax planning point of view.
Note: Besides income tax, each taxpayer has to pay a mandatory “Health and Education” cess to the government. It is 4% of the tax (including surcharge) amount paid in that financial year.
Tax Deduction at Source (TDS) & Double Tax Avoidance Agreements (DTAA)
Every time a freelancer receives a payment that exceeds ₹30,000 ($400) per transaction or in aggregate during a financial year, TDS applies at the rate of 10%. The TDS must be deposited with the government & returns must be filed if applicable.
Similar to TDS, some international clients may also deduct locally applicable taxes. This implies that income will be taxed at source and also in the country of residence. To save from double deductions, individuals need to file DTAA documentation, that will help claim tax relief either through exemption or tax credit.
What exemptions are available for freelancers?
According to the tax regime of India, freelancers can cut down their tax outgo by investing in tax saving instruments or by declaring professional expenses incurred during that financial year.
Exemption Instruments
As per Section 80 of the Income Tax Act, freelancers can save up to ₹150,000 ($2,000) by investing in tax saving instruments like Provident Funds, National Saving Certificates, ULIPs, and Life Insurance, etc.
Professional Expenses
Freelancers can deduct expenses they incurred to do the job from their income. Conditions to claim expenses as a deduction from freelancing income:
• The expense is for the freelancing work carried out
• Spent fully and exclusively for work
• Incurred during the particular tax year
• It is not incurred for any purpose which is an offence or prohibited by law
Expenses claimed as a deduction against income:
• Rent of the property
• Repairs undertaken on the property rented for carrying out work
• A reasonable portion of depreciation cost of a capital asset like a laptop, etc
• Office expenses like supplies, your monthly telephone bills, internet bills, and conveyance expenses, etc
• Travel and hospitality expenses
Note: Expenses more than ₹10,000 ($130) made in cash are not allowed for deduction.
What is the frequency of tax liabilities for a freelancer?
If the total tax liability during a financial year exceeds ₹10,000 ($130), the taxpayer has to pay taxes every quarter. This is an advance tax. Following is the deadline calendar:
Income Tax Return
To file returns use either ITR 3 or ITR 4. ITR 3 applies to income from business or profession. Freelancers can opt for a presumptive tax scheme under Section 44ADA (if total income is less than ₹5,000,000 ($67,000)) and pay income tax on only 50% of their gross income under ITR4.
To figure out deductions made on your income and also any deductions made by employers or banks, freelancers should use Form 26AS.
Do freelancers have to pay GST?
In India, Goods & Service Tax (GST) has now replaced the Value Added Tax (VAT) and Service Tax.
Freelancers with income exceeding ₹2,000,000 ($27,000) have to register for a GST number. However, freelancers who provide services in their state are exempt from the same.
GST% depends on the kind of goods sold or services offered. If there is no specification then a standard rate of 18% is applicable. GST charges should be over and above the payment for services received by clients and submitted to the government.
Freelancers must send a signed GST invoice to clients that include mandatory details:
• Name
• Business address
• GST TIN (of both client and freelancer)
• Invoice number
• Invoice date
• Due date
• Value of service & tax rate applicable
GST Return
A freelancer can claim a GST refund in case the GST payment made is more than the payment liable for that financial year. The time limit for the same is 2 years from the relevant date. If a freelancer is a registered regular taxpayer they have to file 25 GST returns in a year. One needs to fill Form RFD01 and get it certified by a Chartered Accountant.
In case of late payments, the following penalties are levied:
• A late fee of ₹200 ($3)
• An interest of 18% per annum. A taxpayer can calculate this amount on the tax to pay.
• A minimum penalty of ₹10,000 ($130) if the tax is not paid.
• For unpaid tax, the maximum penalty is 10% of the tax amount due.
Note: In case of delayed payment, the government is liable to pay a delay interest rate of 24% p.a.
While it is easier to become a freelancer, it is not so simple to manage all the nitty gritty surrounding it.
Further, laws may change so it is advisable to refer to government sources or seek help of a professional.
