There were days when your parents would give you a 10Rs note and you could buy anything you want, no questions asked. That’s when most of us got a sense of what money is. Over time, our understanding of money has improved as we started working. While financial literacy hasn’t improved much over the years, it’s good to see people showing keen interest in learning more about money and financial planning.
It’s a great moment to earn your first salary, but within a few months, you face the reality – Income Tax. Most of us have absolutely no idea about tax filing during our first jobs let alone blogging and freelancing. So, the elephant in the room that I am going to address today is Income tax filing for bloggers and freelancers in India.
Income Tax for Freelancers
We all know that blogging started as a side hustle for many, for some it turned into their breadwinner. Even today there are many who write for themselves, but there are also others who want to make that extra buck through blogging. And irrespective of which part of the world you are living in, you have to pay income taxes to the government.
While bloggers in India enjoy the extra cash coming in, they seldom think about tax filing for bloggers which leads to incoming notices from tax authorities. So to avoid that, I’m going to be talking about tax filing for bloggers in India.
I’m writing this based on my experience and let me tell you that I’m not a Chartered Accountant or an Income Tax Professional. I’ve been doing tax filing for myself and my family for years now and have a sound understanding of it. Being a blogger, I thought I could write about tax filing for bloggers as I’ve done that for myself and things have been going well.
Tax Filing for bloggers – Things to Know
Before we deep dive into income Tax filing for bloggers in India, let’s first get a few things right:
- Income Tax is to be paid on whatever you earn either through your salary or freelance assignments. The amount will be taxed as per the prevailing income tax slabs.
- The income tax filing process has become easier over time. I remember filling sheets and sheets when I did taxes for my dad, today it’s just about a few clicks. Most of the information (if you are salaried) is updated and you just need to cross-check and submit it. You can either use a free service like ClearTax to file your returns or Do it yourself (my preferred way) and learn.
- In terms of forms to fill to file income tax returns, there are a lot of them. ITR-1 and 2 are used most commonly. ITR-3 and ITR-4 are used to report earnings from business professions in addition to salary. ITR-4 is what we will use in this post for income tax filing for bloggers in India.
Now that you know the various forms that are available to file returns, which form is to be used for tax filing for bloggers in India? ITR-4 is the form to be used for income tax filing by bloggers and freelancers.
How income tax actually works
Many people who are earning are not even aware of how income tax actually works. Many think that if you are earning Rs 10,00,001 per year, you will be taxed at 30% (slab rate as per old regime in 2021). But that’s not how it actually works. The first 2,50,000 is tax-exempt, you will be taxed on the remaining 7,50,000. Out of this, the first 5,00,000 will be taxed at 5% and the remaining will be taxed at 10% and so on. Obviously, if you have invested in instruments like NPS, Tax Saving FD, and Mutual Funds (Sec 80C) that will be taken into consideration before arriving at the final tax amount.
If you are a working professional, most likely this amount would already be deducted from your salary every month in the form of TDS (Tax Deducted at Source). But if you are a freelancer or blogger, you will need to provide these details. So how will you be taxed? That’s where section 44ADA comes to your rescue.
Understanding tax filing using ITR-4
ITR-4 is a special income tax return filing form that is aimed at individuals, partnership firms having incomes from business and profession. It has a provision for presumptive taxation under section 44ADA (I’ll simplify this below)
Unlike the ITR-1 or ITR-2 where you report income only through salary or house rent, in ITR-4 you can report income from salary as well as a business profession. Further, we are interested in only section 44ADA for tax filing for bloggers and will look only into it.
Presumptive Taxation under Section 44ADA
The presumptive taxation scheme was introduced in FY 1995-96 under section 44AD of the Income Tax Act. This provision was a boon for eligible small businesses to maintain regular books of accounts and declare income at the prevailing rates. As the gig economy progressed and more and more people started looking at freelancing as their primary mode of income, the income tax laws needed a change.
The change came in the form of Section 44ADA where a similar presumptive taxation scheme was introduced for small self-employed professionals in FY2015-16.
What exactly is presumptive taxation?
Let’s first go by the words first. Presumptive means presumed and that is the basis for taxation. Under section 44ADA, it is presumed that all the profits generated by eligible professionals are 50% of the gross receipts. In layman’s terms, whatever your earnings are, income tax will be levied only on 50% of your earnings.
Benefits of Section 44ADA
The assumption (presumption) here is that, whatever amount you would have earned, 50% of it is what you would have spent towards generating that income.
For example, if you are a blogger, then you would be paying for your web hosting charges, domain name, electricity bill to run your computer, maybe rent for the place where you are staying, software subscriptions, etc. So let’s say you earned Rs 5,00,000 in a year, Rs 2,50,000 is presumed to be spent towards such expenses (50%) and hence you will be taxed on the Rs 2,50,000 and not the entire Rs 5,00,000 that you have earned. Further, in that case, you need to pay Advanced Tax based which can be done using net banking and you’d get a challan number that needs to be entered during the filing process.
I can confirm this as I’ve filed my ITR-4 and it has been processed successfully.
This section makes tax filing for bloggers and freelancers extremely simple. You are not required to maintain any books of account or even get them audited by a chartered accountant if you are earning less than Rs 50,00,000 a year. You can simply opt for ITR-4 while filing your returns and enter 50% of the amount that you have earned. I’ll write a dedicated blog post on how to file ITR-4 as this one is already a pretty lengthy post!
I decided to pen this post to help bloggers, content creators, and freelancers in India who have got their first paycheque from their gigs but aren’t aware that tax filing needs to be done. Doing this will help them avoid any notices from the tax authorities and keep everything simple and transparent. I’m an advocate for better financial literacy in India and this blog post will also help people learn about income tax filing for bloggers and freelancers in India.
PS: In case you are an income tax professional and find anything misleading or wrong, please connect with me.