9 Things To Know Before You Start Freelancing In India

Introduction

Freelancing has come a long way from being a side hustle to the most preferred type of employment. The freelance economy in India is part of the more comprehensive structure known as the gig economy. The task-specific and on-demand nature of work is the most attractive USP for both the parties involved. 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 has taken wings in India, especially in engineering & technology profiles. If you’re aiming to set out as a master of this gig economy in India, this article will help you cut the frills of all the legal formalities and allow you to give a new dimension to your career.

Why 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. Current dynamics have left most organizations cash-crunched & growth hungry. We all know setting up an office space & employing full-time professionals come with many legal formalities. Hence many have started preferring freelancing gigs as they require less supervision, paperwork, and expenses, thereby saving costs. For example, in 2018, Gojek, Southeast Asia's first unicorn and the fastest growing start-up headquartered in Indonesia announced its plan to hire Indian technology professionals for its "Super App." The company aims to expand its portfolio of products in food delivery, taxi-sharing, logistics, digital payments, etc.

The COVID-19 pandemic has forced companies and professionals to work remotely. While this situation has affected the world economy, it has also highlighted the benefits of remote working. During these troubled times, freelancing and on-demand services have emerged as the future of employment. Due to this, the future of freelancing in India is undoubtedly becoming promising and rewarding.

Freelancers gain expertise and expand their knowledge as they get to work with different organizations and domains. Moreover, they love professional freedom, flexibility, and wider choice, even if it comes at the cost of irregular earnings.

"In today's fast-paced work dynamics, work-life balance and freedom to pursue anything besides work has taken a back seat! Luckily being a freelancer with Skuad, I don’t have to compromise on my "me time" like most professionals while I can achieve my financial targets" – Tushar Mehta, our WordPress Developer

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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 foreign nationals living in India, there is no particular category of visas 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 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 by the Registrar of Companies (ROC).

What are the eligibility & requisites for becoming a freelancer?

Freelancing work in India requires the fulfillment 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

General Requisites

  • An email ID
  • CV/ Resume
  • Portfolio (where applicable such as a designer)
  • Additional IDs proofs such as Aadhar, Passport, Voter ID, or PAN Card
  • Photo (for profile)

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 numerous 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 spot freelancer opportunities, making it easy, direct, and immediate.

How to receive payment 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 actively used to process smaller transactions instantly and charge-free.

How can freelancers plan their finances & save taxes?

Freelancer's income invites taxes irrespective of its generation source, i.e., domestic or foreign.

The freelance income tax process is slightly complicated as compared to salaried individuals. They have to follow additional steps to file income tax returns as they derive their income from multiple sources. They 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.

Income (₹)

Tax

Less than 250,000

N/A

250,000 - 500,000

5%

500,000 - 1,000,000

20%

More than 1,000,000

30%

Starting with the financial year 2020-21, The Indian government has proposed a "New Tax Regime" and the existing, i.e., Old Tax Regime. Freelancers now have the liberty to choose between the two regimes depending on the most appropriate tax planning point of view.

Income (₹)

Tax

Less than 250,000

N/A

250,000 - 500,000

5%

500,000 - 750,000

10%

750,000 - 1,000,000

15%

1,000,000 - 1,250,000

20%

1,250,000 - 1,500,000

25%

More than 1,500,000

30%

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 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 the 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 wholly and exclusively for work
  • Incurred during the particular tax year
  • It is not incurred for any purpose which is an offense 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:

Deadline

Advance tax to be paid

Before 15th September

30% of the payable tax

Before 15th December

60% of the payable tax

Before 15th March

100% of the payable tax

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 any deductions made by employers or banks, freelancers should use Form 26AS.

Do freelancers have to pay GST?

Goods & Service Tax (GST) has now replaced the Value Added Tax (VAT) and Service Tax in India. 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 if the GST payment made is more than the payment liable for that financial year. The time limit for the same is two 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 delayed interest rate of 24% p.a.

Looks complicated?

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