India is the second fastest-growing freelance market in the world. As the pandemic forces more individuals to turn to freelancing, understanding the nitty-gritty of working as an independent contractor is an art in itself. In this blog, we’ve put together the most important information, which you might find useful to get started as a freelancer in India.
Who is an independent contractor/freelancer?
An independent contractor/freelancer is a person who works for a client (individual or company) but is not an employee of that client. Independent contractors can work for multiple clients simultaneously. They may be hired for short-term or long-term projects.
The hiring client/company, usually, does not have control over how and when the work is done. They can control only the results of the freelancer’s work. While a lot of freelancers in India work for clients without contracts and agreements, it’s a good practice to bring in a contract.
Getting started as an independent contractor in India
In India, contractors and freelancers do not require any formal registration to conduct their business/work. However, they might require to show a few documents to their clients, such as these:
- PAN (Personal Account Number) for taxes
- Aadhaar card number
- Bank account for receiving payments
- Certificates of educational qualifications and other credentials
- A C.V. with detailed information of skills, past employment experience, etc.
Pro tip: update your C.V. every two to three months. It creates a good impression.
- A portfolio showcasing past work and skills (this is especially helpful for writers, graphic designers, PR professionals, artists, etc.)
Once you have the above requirements in place, you can get started by finding clients, pitching for assignments, and landing projects. Freelancing being an unorganized space in India, you’ll need to learn the basic tricks of the trade and how to manage your relationships with clients.
Invoices are as important as your work
When you’re working as a freelancer, you’re an entire office team squeezed into one. You’re the boss, the admin, the accountant, the manager, coordinator and client servicing person. You’ll have to create and issue invoices to your clients. Here’s what you should keep in mind:
Make your invoices look professional. There are loads of free and paid online invoicing tools that can help you create and manage invoices (Invoicely, InvoiceSimple, Zoho Books, WaveApps).
Include these important details in every invoice:
- Invoice Number and Date
- Client Name and Address
- Client TIN / GST number
- Particulars of work done
- Amount in INR (or in the currency in which you’re receiving your payments)
- Bank account details with PAN (to receive payments)
Send invoices soon after your work is completed and do a timely follow up if there’s a delay in receiving the amount. Pro tip: Don’t hesitate to follow up persistently.
Taxes for independent contractors in India
Just like salaried individuals, freelancers/contractors in India are also liable to pay taxes. There are mainly two types of taxes that they need to be concerned about: 1) Income tax and 2) GST (Goods & Services Tax).
Income tax
Individual contractors are liable to pay income tax if their annual total income (gross total income reduced by eligible deductions) exceeds INR 2.5 lakh. Here are the key points you need to know:
- Freelancers can also claim deductions for any expenses incurred towards work, just like business entities that run offices -- think office or co-working office rent, depreciation of a capital asset (laptop, tools, equipment, machinery), travel or repairs.
- Then there’s Presumptive Taxation (PTS) - a taxation scheme that allows freelancers to calculate taxes on an estimated income or profit. The scheme can be used by businesses having a total turnover of less than INR 2 crore and eligible professionals with gross receipts of less than INR 50 lakh in a financial year.
- Clients who are required to comply with TDS provisions as per the Income Tax Act, 1961 are liable to deduct TDS from payment of fees for professional services at the prescribed rates (10%) if the payment exceeds the threshold limit in a year (currently INR 30,000).
- Usually, clients deduct TDS (Tax Deducted at Source) that is 7.5% or 10%. (the rate for 2020-21 was 7.5% due to the pandemic. For 2021-22, the rate is 10%. Tax deducted by clients from payments is duly reflected in your Form 26AS upon the clients’ filing of their TDS returns.
- If the client/contractor does not deduct TDS, the freelancer will need to pay taxes on the same in case they exceed the basic exemption limit of INR 2.5 lakh.
- A freelancer is required to file income tax return (ITR) for every financial year and pay taxes as per provisions of Income Tax Act. The tax deducted by clients is utilized for payment of tax liability and any deduction in excess of tax liability can be claimed as refund at the time of filing of Income Tax return.
- In case, the total annual tax liability exceeds INR 10,000, they will have to pay tax every quarter. This is called advance tax. The due dates for advance tax are 15th June, 15th September, 15th December and 15th March. There’s an interest in case of late payment or non-payment of the minimum amount.
GST
All freelancers are liable to pay GST if their annual income exceeds INR 20 lakh, and INR 10 lakh in the case of special category states. Keep in mind these details:
- If you provide services, you can charge 18% GST from clients. This tax amount has to be deposited with the government. You can claim the eligible Input Tax Credit of GST paid by you and only need to pay the net amount into the credit of the Government.
- You must ensure your invoices are GST compliant. Conversely, freelancers must ensure that the invoices they receive from their vendors are GST compliant (so as to be able claim input tax credit on those tax invoices).
When a client pays from another country
Working for clients paying from another country can get tricky and complicated. Hence, it’s important to make clear payment terms and tax matters before you start working for them. Here’s what you need to know:
- Foreign clients might not be aware of GST provision in India, and hence, it’s better to communicate to them the applicable GST rules.
- Foreign clients might follow different rules for taxes applicable in their country. Understand these clearly.
- Income earned from foreign clients will be taxable like local income.
- There’s one important aspect you must understand clearly - DTAA (Double Tax Avoidance Agreements).
Let’s understand this with an example: you earned an amount from a client in the US. Just like Indian clients might deduct TDS from your payment, clients in the US may deduct taxes applicable in their country. This means your income was taxed at source as well as in India. To avoid double tax, India has entered into DTAA with many countries. A tax residency certificate is mandatory in this case that will help you claim tax relief in one country.
To understand income tax in detail, you must visit the government portal: www.incometaxindia.gov.in
File your taxes sincerely
Now onto the elephant in the room - filing taxes. While most individuals fear this topic thinking it’s confusing and complicated, it isn’t so. The e-Filing portal by the Government of India has made the process easy, quick and secure for assessees to file their income tax returns. Here’s a detailed guide and the broad steps:
- Download the appropriate ITR form
- Compute all the tax details
- Confirm and go to the ‘Submit Return’ section
- Sign the form digitally or physically and scan it
- You’ll receive confirmation from ITR verification
- E-verify return
Link to file your taxes online: https://www.incometaxindiaefiling.gov.in/home
For details on filing GST returns, read this: https://cleartax.in/s/gst-returns/
Conversely, you could also avail the services of a professional for filing return of your income tax.
Over to you
As more companies and clients turn their attention toward India’s rich talent pool for freelance and contract opportunities, it’s important for freelancers to up their game, have a professional outlook and consider each of the above factors to conduct their work professionally.
This content was generated by a freelance content writer, Jigna Padhiar, and reviewed by a professional Chartered Accountant, Ms. Jyoti Vishvakumar Harsh, in India.
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Try RemotePassTry RemotePassIndia is the second fastest-growing freelance market in the world. As the pandemic forces more individuals to turn to freelancing, understanding the nitty-gritty of working as an independent contractor is an art in itself. In this blog, we’ve put together the most important information, which you might find useful to get started as a freelancer in India.
Who is an independent contractor/freelancer?
An independent contractor/freelancer is a person who works for a client (individual or company) but is not an employee of that client. Independent contractors can work for multiple clients simultaneously. They may be hired for short-term or long-term projects.
The hiring client/company, usually, does not have control over how and when the work is done. They can control only the results of the freelancer’s work. While a lot of freelancers in India work for clients without contracts and agreements, it’s a good practice to bring in a contract.
Getting started as an independent contractor in India
In India, contractors and freelancers do not require any formal registration to conduct their business/work. However, they might require to show a few documents to their clients, such as these:
- PAN (Personal Account Number) for taxes
- Aadhaar card number
- Bank account for receiving payments
- Certificates of educational qualifications and other credentials
- A C.V. with detailed information of skills, past employment experience, etc.
Pro tip: update your C.V. every two to three months. It creates a good impression.
- A portfolio showcasing past work and skills (this is especially helpful for writers, graphic designers, PR professionals, artists, etc.)
Once you have the above requirements in place, you can get started by finding clients, pitching for assignments, and landing projects. Freelancing being an unorganized space in India, you’ll need to learn the basic tricks of the trade and how to manage your relationships with clients.
Invoices are as important as your work
When you’re working as a freelancer, you’re an entire office team squeezed into one. You’re the boss, the admin, the accountant, the manager, coordinator and client servicing person. You’ll have to create and issue invoices to your clients. Here’s what you should keep in mind:
Make your invoices look professional. There are loads of free and paid online invoicing tools that can help you create and manage invoices (Invoicely, InvoiceSimple, Zoho Books, WaveApps).
Include these important details in every invoice:
- Invoice Number and Date
- Client Name and Address
- Client TIN / GST number
- Particulars of work done
- Amount in INR (or in the currency in which you’re receiving your payments)
- Bank account details with PAN (to receive payments)
Send invoices soon after your work is completed and do a timely follow up if there’s a delay in receiving the amount. Pro tip: Don’t hesitate to follow up persistently.
Taxes for independent contractors in India
Just like salaried individuals, freelancers/contractors in India are also liable to pay taxes. There are mainly two types of taxes that they need to be concerned about: 1) Income tax and 2) GST (Goods & Services Tax).
Income tax
Individual contractors are liable to pay income tax if their annual total income (gross total income reduced by eligible deductions) exceeds INR 2.5 lakh. Here are the key points you need to know:
- Freelancers can also claim deductions for any expenses incurred towards work, just like business entities that run offices -- think office or co-working office rent, depreciation of a capital asset (laptop, tools, equipment, machinery), travel or repairs.
- Then there’s Presumptive Taxation (PTS) - a taxation scheme that allows freelancers to calculate taxes on an estimated income or profit. The scheme can be used by businesses having a total turnover of less than INR 2 crore and eligible professionals with gross receipts of less than INR 50 lakh in a financial year.
- Clients who are required to comply with TDS provisions as per the Income Tax Act, 1961 are liable to deduct TDS from payment of fees for professional services at the prescribed rates (10%) if the payment exceeds the threshold limit in a year (currently INR 30,000).
- Usually, clients deduct TDS (Tax Deducted at Source) that is 7.5% or 10%. (the rate for 2020-21 was 7.5% due to the pandemic. For 2021-22, the rate is 10%. Tax deducted by clients from payments is duly reflected in your Form 26AS upon the clients’ filing of their TDS returns.
- If the client/contractor does not deduct TDS, the freelancer will need to pay taxes on the same in case they exceed the basic exemption limit of INR 2.5 lakh.
- A freelancer is required to file income tax return (ITR) for every financial year and pay taxes as per provisions of Income Tax Act. The tax deducted by clients is utilized for payment of tax liability and any deduction in excess of tax liability can be claimed as refund at the time of filing of Income Tax return.
- In case, the total annual tax liability exceeds INR 10,000, they will have to pay tax every quarter. This is called advance tax. The due dates for advance tax are 15th June, 15th September, 15th December and 15th March. There’s an interest in case of late payment or non-payment of the minimum amount.
GST
All freelancers are liable to pay GST if their annual income exceeds INR 20 lakh, and INR 10 lakh in the case of special category states. Keep in mind these details:
- If you provide services, you can charge 18% GST from clients. This tax amount has to be deposited with the government. You can claim the eligible Input Tax Credit of GST paid by you and only need to pay the net amount into the credit of the Government.
- You must ensure your invoices are GST compliant. Conversely, freelancers must ensure that the invoices they receive from their vendors are GST compliant (so as to be able claim input tax credit on those tax invoices).
When a client pays from another country
Working for clients paying from another country can get tricky and complicated. Hence, it’s important to make clear payment terms and tax matters before you start working for them. Here’s what you need to know:
- Foreign clients might not be aware of GST provision in India, and hence, it’s better to communicate to them the applicable GST rules.
- Foreign clients might follow different rules for taxes applicable in their country. Understand these clearly.
- Income earned from foreign clients will be taxable like local income.
- There’s one important aspect you must understand clearly - DTAA (Double Tax Avoidance Agreements).
Let’s understand this with an example: you earned an amount from a client in the US. Just like Indian clients might deduct TDS from your payment, clients in the US may deduct taxes applicable in their country. This means your income was taxed at source as well as in India. To avoid double tax, India has entered into DTAA with many countries. A tax residency certificate is mandatory in this case that will help you claim tax relief in one country.
To understand income tax in detail, you must visit the government portal: www.incometaxindia.gov.in
File your taxes sincerely
Now onto the elephant in the room - filing taxes. While most individuals fear this topic thinking it’s confusing and complicated, it isn’t so. The e-Filing portal by the Government of India has made the process easy, quick and secure for assessees to file their income tax returns. Here’s a detailed guide and the broad steps:
- Download the appropriate ITR form
- Compute all the tax details
- Confirm and go to the ‘Submit Return’ section
- Sign the form digitally or physically and scan it
- You’ll receive confirmation from ITR verification
- E-verify return
Link to file your taxes online: https://www.incometaxindiaefiling.gov.in/home
For details on filing GST returns, read this: https://cleartax.in/s/gst-returns/
Conversely, you could also avail the services of a professional for filing return of your income tax.
Over to you
As more companies and clients turn their attention toward India’s rich talent pool for freelance and contract opportunities, it’s important for freelancers to up their game, have a professional outlook and consider each of the above factors to conduct their work professionally.
This content was generated by a freelance content writer, Jigna Padhiar, and reviewed by a professional Chartered Accountant, Ms. Jyoti Vishvakumar Harsh, in India.
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