Regulatory compliances for Freelancers in India

Introduction to Freelancing

Freelancing or the Gig Economy is an emerging movement around the world. The concept of freelancing is based on the premise that knowledge is global and more accessible than before. The freelancing economy is a type of market where jobs are provided on a short-term basis or an assignment basis and are not as a permanent contract. Therefore, the workers in this market get paid for their ‘gigs’ rather than wage or permanent salary.

A freelancer is a self-employed person who provides his services to multiple clients at a single time. Such a person does not expect any regular income for himself. Rather he is paid based on the specific assignments completed by him on an hourly or daily basis. 

Today, the demand for freelancing is on the rise. In India, it has been a completely unexplored career option that gives you the freedom to work according to your own choice and be your boss. The freedom and flexibility that come along with freelancing are what make it an attractive option as compared to a regular job. It is like being in the driver’s seat and controlling every aspect of your business. It gives you the ability to work according to your financial needs and keep a balance between your professional and personal life.

Today, big companies are also tapping on this niche talent and prefer getting on board with freelancers who have an innovative approach towards work. The bright side of this gig economy is that it is changing the market dynamics and boosting the spirit of entrepreneurship. In a way, it is also increasing the feeling of work culture among females because women also prefer to work if they are allowed to work according to their comfort after managing their household responsibilities.

Some of the popular freelancing activities are: 

• Tax Consultancy Services
• Management/Consultancy Services
• Accounting/Bookkeeping
• Software/App Development
• Data entry
• Designing services
• marketing services
• SEO Management
• Domain and hosting
• Voice over
• Language Translation

Growth of Freelancing in India

Companies in India are slowly and gradually realizing the potential of a freelancing economy. The freelancing community has grown significantly and has made India the largest freelancing market in the world. It is a new trend that requires no additional workspace, no training and development, and no added investments!

Besides the tremendous amount of benefits the freelancing market offers, the slow and sluggish growth in the employment generation rate is also an important reason for its increased demand. Amidst the worrying job scenario with extensive screening processes and the difficulty in matching the right job with the right people, the gig economy seems very promising.

Startups, consulting firms, and multinational companies, everyone is sourcing numerous flexible talents from across the country at the cost of a single employee. They are exploiting opportunities and getting their tasks done by various experts when they are unable to match their local workforce with the market’s demand. With opportunities come the responsibilities of various compliances for these freelancers. 

A Boom in the Women Freelancing Community

The concept of freelancing is gaining significant attention from women due to the great work-life balance it offers. If we compare the number of women in this community, we can say that it is thriving. Women today are driving themselves towards their passion and hence find the gig economy as something that suits their needs. Changes in their family and marital life do not fit in well with their work pressures. Moreover, they prefer to maintain a diverse life with different personal and professional identities. 

Freelancing comes with an additional burden of compliances

The topic of compliances for freelancers often makes them stressed. The burden of numbers, taxes, advance tax, penalties is dreadful. Some of the compliances that a freelancer is expected to do in India: 

1. Income tax

• Income earned by freelancers comes under the head “‘Profits and Gains from Business or Profession’ as it requires the implementation of skills. Expenses deducted by freelancers are those incurred in doing the business like depreciation on assets, traveling expenses, software, meal expenses, etc.
• Income up to Rs 2,50,000 is exempted from tax up to the age of 60 years irrespective of gender. Applicable slab rates apply after this limit. 
• The freelancer can make eligible investments under section 80C which reduces their tax burden.
• If the total tax liability exceeds Rs 10,000 for a particular financial year, they need to pay an advance tax within the deadlines.
• They can opt for the Presumptive Taxation Scheme if the gross receipts do not exceed Rs 50 lakh and are eligible professional u/s 44ADA of the Income Tax Act, 1961.
• Freelancers professionals as mentioned above need to get their accounts audited if the income exceeds Rs 50 lakhs.
• Filing of Income Tax Return within the prescribed due dates.
• Refund of extra TDS deducted by the deductor while making payment to the freelancer. 
• If he or she is a non-resident, the income earned in India will be taxable India. 

2. Goods and Service Tax

• If the income of a freelancer exceeds Rs 40 Lakhs/20 Lakhs(as applicable)/in any financial year, he or she needs to apply for GST Registration. 
• For freelancers residing in certain special category states, the limit is Rs 10 lakhs.
• GST to be paid at appropriate rates. 
• Freelancers can also opt for the Composition Scheme and pay taxes at reduced rates with minimal compliances. 
• Registered taxpayers should file their GST return in time. 
• Filing of GST Annual Return GSTR 9 along with GST Reconciliation Statement GSTR 9C if applicable. 
• If the freelancer is providing export of services then he can apply for a refund of taxes paid if no LUT or bond has been filed for the intended export of services. 
• These days freelancers are providing services on popular platforms like Fiverr, Upwork, etc. where payments are realised in foreign currency. In most cases, recipients on these platforms are from outside India. FIRC is required by the service providers at the time of export of service

Also Read: Applicability of GST on Freelancers

3. Accounting and Bookkeeping

Freelancers are required to maintain proper books of accounts to understand the actual position of their business. Further, books of accounts are also required for filing GST Returns, Income Tax Returns, etc. Freelancers who are registered under GST are required to maintain complete books of accounts. They need to maintain invoice sequencing, Input Tax Credit, Audits, etc. 

Conclusion

The freelancing or the gig economy has been on an uprise in India. The advantages of having flexible work hours, reduced work pressure, choosing your work, and being your boss make freelancing a very attractive market. Today on average, we will find more women working as freelancers as compared to men. This is mainly because of the flexibility they get in maintaining a well-balanced home and work life and their desire to do what they love. Freelancers have to comply with various regulations just like other salaried or business individuals. 

The author is a Chartered Accountant with more than 6 years of experience in Auditing, Taxation and Project Finance-related matters.