Freelancing in India is highly untapped market. With the advent of affordable broadband services, working from home is close to becoming a reality. Sites like oDesk, Get A Freelancer, Scriptlance & scores of other sites offer more than enough opportunities one can handle. Today, I have reason to believe, freelancing does pay. All it takes is a little bit of patience and lots of perseverance.
With all the dictionary definitions on one side, the term freelancing is normally associated with extra income. More fondly known as “parallel income”, something that you would do during your “non-office”hours and get paid for it too. If you are the type who would still do the same thing, even if no one pays you, then you just got yourself a hobby.
If you have had the experience of being associated with a startup, then I am sure you will be able to relate to the following scenario. First you burn your eyes out by making the right contacts & clinching the right kind of deals. Then you work your butt out at keeping the deadlines, and finally you wait with bated breath for the payment to get credited. Then its the same cycle all over again. Amidst all this frenzy you need to keep track of all administrative work, do the accounts, pay the salaries and last but not the least, file your taxes as well.
Things tend to approach this frenzy in freelancing once your clientele begin to grow. But, as freelancers we tend to forget that “we earn”, albeit marginally, it is still an income. Tell me, how many of us knew that “Any income derived by way of freelancing job is taxable under the provisions of Income Tax Act. 1961.” ( — there, now you know)
I tired searching for over 8 months all over the internet for some pointers in tax laws that might provide some insight from a freelancer’s point of view ( note :- freelancer from India). http://www.incometaxindia.gov.in/ did not give me any relevant results & http://indiankanoon.org threw some case references at me. Not to be surprised, everything bounced off my head even before I knew it. Then I did what I knew best I could do. I began looking for lawyers in the blogosphere. And that did it for me.
I came across Mr.Ranjith Xavier’s blog at http://indianlawyer.blogspot.com/, where he blogs about various legal topics. He is an Independent Legal Services Professional, and practicing in the High Court of Kerala at Ernakulam. All I had to do was ask and after few emails, Ranjith was hard at work compiling this extensive information about the various tax laws and the terminologies involved. He can be contacted at ranjithxavier(AT)gmail.com & has agreed to help to the best of his knowledge. Thanks! Ranjith.
He puts things under perspective as Tax Laws & FOREX laws ( i.e. Foreign exchange laws) Please click on the image to download the pdf document
If your annual income derived out of freelancing job alone; or if added to your other income(s), adds up to exceed the annual limit mentioned in the Income TaxAct, you are duty bound to apply for and obtain a Permanent Account Number (PAN).
Under the provisions of the THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT,1992, anyone doing import or export is expected to apply for and obtain an Importer-Exporter Code Number (IEC Number).
Strangely though, he also put forth this query to us, before answering it for us
“Import” and “export” means respectively bringing into, or taking out of, India any goods by land, sea or air;” In common parlance, “Goods” means merchandise or movable property in physical form.Now the question to be considered is whether a person who transmits digital files over internet is exporting “goods” from India to abroad.
Once “services” too are brought into the ambit (ie scope) of the said Section 7 of the Foreign Trade (Development and Regulation) Act, 1992,every freelancer who performs services to a foreign client would be exporting it and thus attracting the provisions of the said Act. In such a case, he/she should apply for and obtain the IEC Number.
These are snippets from the compilation that Mr.Ranjith Xavier has put forth for us. Honestly, I am getting intimidated by looking at the links listed in this document from where the relevant information has been handpicked by Ranjith. Few months back, I was all lost, be it the search phrase or which site to look. Now, Thanks to Ranjith, at least now I know where to start. From what I understand , the information within this document is only the tip of an iceberg.
That was a new and interesting insight, Deepa. And a frightening one too (the long arm of the taxman!). I wonder whether this is applicable to income received from Google Adsense (in this case you are neither exporting nor importing anything, but are still getting income because someone is clicking on your ads). Would be interesting to know about that.
Hi EG
.. hmm.. Adsense …
Well, guess we will have to wait for Ranjtih to answer this.
Hi EG, Deepa,
Google Adsense is the income you receive from Google for allowing the display of ads from Google on your web pages. True, by itself, it would not amount to export or import. But, it is an income and Income Tax laws are applicable.
Since lending of online space amounts to service, Service Tax would also be attracted. But tax liability depends on facts of each case.
Consult your Tax Practitioner for more details.
Tahnks Ranjith
So you say, Inc Tax laws are applicable to Adsense as well.
Well, do you have any CA who might help us out here ?
There is not much info on these lines in the internet, We could sure use some expert advice.
Hi Deepa,
Thank you once again for this blog link you gave me on odesk.
Some of my questions about tax were answered but I'm also gonna email Ranjith about another issue not related to tax etc. I hope that is okay and he can reply me.
A small suggestion, you might want to remove Ranjith's email or change it to read ranjithxavier(AT)gmail.com
In that way you'll help him not get spam from the bots visiting your blog. 🙂
Hi Raspal,
Glad to know that you found this post useful. & hope Ranjith clarfies your queries.
If your query would be relevent to other freelancers as well, please share it (after removing confidential info).
Thanks for the tip.
All the best
Regards
Deepa Govind
"Since lending of online space amounts to service, Service Tax would also be attracted. But tax liability depends on facts of each case."
I am a freelancer and i work through freelancing websites as well as directly for clients abroad. I get paid either by paypal or directly into my bank account (all amounts paid in dollars/euros) .
Do i have to levy a sevice tax? Since the income is from services consumed outside india and paid for in foriegn exchange.
Wow Deepa!!! That’s an incredibly important article. Thanks a lot for sharing it on your blog and also guiding us to Mr Ranjith for further clarifications. I need all these info once I’m going settle in India, probably soon 🙂
Thank you very much for this post.
After a lot of search on internet, this article of yours gave me a good idea of what might apply to me in terms of tax payments.
Thanks,
Deepak
Hi Deepa. Here is a question that perhaps you can help me out with. I live in the US and am beginning to do business with a company in Bangalore remotely. I’m an art director/designer/consultant (my company is also incorporated). I was told that we have to pay India taxes on income received from there. do you know if this is true, and if so, what percentage is that? Thanks in advance!
Hi Barra
May be you would want to take a look here http://bit.ly/105qIuz
Thanks Deepa!
This is very important that every freelancer should consider the tax laws like any other business man. It will also help freelancer if they decide to move to another country…