Freelancers and consultants: Important tips for filing income tax returns on time

The deadline for filing your income tax return is approaching in just two weeks. Missing this deadline will result in fines, which is why there is a rapid increase in the number of filers as the deadline approaches. Many individuals rely on chartered accountants (CAs) to handle their tax returns as they find it challenging to file on their own. However, the process of filing income tax returns is relatively simple for all taxpayers.

Different process for non-salaried individuals:

 Filing income tax returns is easiest for salaried individuals who face fewer complications. However, there has been a surge in the number of people opting for freelance or consulting work instead of regular jobs. With the rise of this work culture, the process of filing income tax returns differs for such individuals. If you have worked as a freelancer or consultant, we can assist you in filling out your ITR.

Standard deduction and tax regime:

 First, let's cover some basics. Freelancers and consultants cannot file ITR-1 or ITR-2 forms like salaried taxpayers. Additionally, they are not eligible for the standard deduction of Rs 50,000 since their income does not come from salaries. However, you can claim other deductions based on your expenses.

When it comes to income tax slabs and rates, they are determined by the amount you earn throughout the year as a freelancer or consultant. You cannot switch tax regimes every year like salaried individuals. The old tax regime is the default option for the current assessment year 2022-23, but you can also choose the new tax regime. Once you opt for the new tax regime, you won't be able to change it as salaried individuals can. The new tax regime will become the default option starting from this financial year.

Understanding the Presumptive Taxation Scheme:

 Freelancers and consultants have the option to choose the presumptive taxation scheme under the Income Tax Act. Consultants earning income from business or profession can opt for the presumptive scheme under section 44ADA of the Income Tax Act. This scheme is applicable to professionals who earned less than Rs 50 lakh during the year 2022-23, which will increase to Rs 75 lakh next year. These professionals can declare 50% of their total receipts as business income, and tax will be calculated accordingly.

Exceptions to the presumptive scheme:

 If a consultant's income exceeds Rs 50 lakh, they can still opt for the presumptive scheme under section 44AD. The total receipts limit for this scheme is currently Rs 2 crore, set to increase to Rs 3 crore in the future. However, if the income is derived from commission, brokerage, or agency business, this benefit cannot be availed.

Deadline for freelancers:

Similar to regular taxpayers, the deadline for filing income tax returns for consultants and freelancers is July 31, 2023. However, if the consultant falls under the audit requirement as per section 44AB, the deadline extends to October 31, 2023. In such cases, the consultant must submit the tax audit report by September 30, 2023.

Which ITR form to use?

 Consultants with professional income must fill out the ITR-3 form. However, if you opt for the presumptive scheme, you need to fill out the simplified ITR-4 form. If your income exceeds Rs 50 lakh or if you have losses to carry forward, you must fill out the ITR-3 form, which includes provisions for reporting profit, loss, and balance sheet information.

Read more: Income tax refund: How to check status and avoid delays in ITR filing process