The Indian accounting and legal systems are incredibly complex and intricate by design.
Freelancers, individuals who who work by themselves and usually lack personnel to handle their accounting and legal needs may find themselves being intimidated and bullied into submission by unruly clients or in a sea of confusing when dealing with financial matters such as tax payments.
While we strongly advise you to seek professional help for any important accounting and legal queries, here are some tips which should come in handy:
Always get it in writing
Usually freelancers to tend to work on projects without much paperwork involved. This tends to get projects running much quicker and if all goes well, it’s quite a smooth process. However, the shortcoming to this is that if there’s any issue with the project, for example: demands of excessive changes, nonpayment, denying their approval on changes, etc then freelancers find themselves in hot water.
By not having a contract set in place before starting work, you increase the risk of not getting your dues. Whenever possible, insist that your client sign paperwork that sets the date by which you will be paid and the number of iterations you will work on for no extra pay. Always set a rate of pay for any work beyond these iterations.
To add to this, if you ever discuss anything about your project with your client either face-to-face or via phone call then do send an email later with what was discussed and ask them to confirm to the same.
Your Work is Your Own (unless specified by contract)
As a freelancer you may find that clients or sometimes even non clients who have just come across your work somewhere will decide to pass off your work as their own. This is illegal.
Any work that you create is your own. You hold the copyright and can decide who can use it and how it can we recreated, unless you sign a contract to the contrary, and surrender all your rights to the client.
Also, this permits you to recreate the work for a different client, without the first client objecting to the same. This is true so long as you do not sign any agreement stating that the work is exclusively for a particular project, and will not be use in any other work.
Remember to deduct your expenses
As a freelancer, you will not always be paid in exposure. Jokes apart, the money that you earn from your projects is your gross income. You do not need to directly calculate taxes based on your gross income. There are a lot of things which you can deduct from your income before you arrive at your Net Taxable income.
Net Taxable Income = Gross Income – Deductions
These deductions are expenses directly related to the job you are doing, spent fully and exclusively for work purposes and are incurred during the tax year.
Here are some of the expenses that can be claimed as a deduction against your income:
Rent of property
Repairs undertaken
Depreciation
Office expenses
Travel expenses
Hospitality expenses (referring to the money spent on clients with the intention of getting new business or retaining current clientele)
Insurance
Domain Registration
Advertising and promotional expenses
Public Provident Fund Investments (upto Rs. 1,50,000)
LIC Policy purchases (upto Rs. 1,50,000)
Medical insurance premiums for you, your spouse, children and parents (upto Rs. 25,000 and upto Rs. 30,000 for senior citizen parents)
What about GST?
Earlier VAT & Service Tax applied on freelancers. Now these taxes have been replaced by the Goods and Services Tax.
Individual professionals earning less that Rs. 20,00,000 a year are exempt from GST. This changes to those earning less than Rs. 10,00,000 for those residing in the states of Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
If you are earning more than the above mentioned incomes, then you will need to be charging 18% GST to your clients for your services and include it on your invoices. You will also need to obtain a GST Identification Number.
Once you obtain a GST Identification number, return filing is compulsory for you. A total of 37 Returns should be filed which includes 3 monthly returns and 1 annual return (those with annual sales below Rs. 1,50,00,000 can file quarterly returns and 1 annual return).
