Know Everything about Advance Taxes for Gigsters
13 September, 2024
The Income Tax department expects us to pay advance tax on our income. Doing so is easy for anyone with a fixed, regular income. But what about you, the gigster? Not all gigsters and freelancers can look far into the future and say, I am going to earn X amount this year. Paying advance tax is not so easy anymore, is it?
You must pay advance tax if your annual income tax liability is more than ₹ 10,000
These advance taxes are paid once every quarter
Failure to pay income tax results in penal interest, which is 0.5% per month (i.e. 3% per quarter)
Many freelancers file returns through the presumptive income scheme, which provides for a single instalment advance tax payment
Here’s more on the freelancer’s guide to advance taxes.
Things to know before paying advance tax
The money you earn from your gigs is taxed under the income head, “Profits and Gains from Business and Profession”
Your gross income is simply the total of all professional receipts
Then you have two options - choose the normal taxation scheme OR the presumptive income scheme
Normal taxation scheme
You can deduct professional expenses from your professional income under the regular tax assessment process. But what exactly are professional expenses? These are expenses that were incurred directly for your profession during a financial year. Here are some examples –
Got a rented place to work from? The rent paid is a professional expense
Repairs and maintenance on your rented office space are covered
Bought a laptop and printer for work? The depreciation on it can be claimed as an expense
Pro tip - Check the depreciation rate of the assets you own
Repairs of your office assets, office stationery and supplies, daily commuting expenses, telephone and internet bills, etc., would qualify as professional expenses too
Expenses to meet clients, taking them out for dinner, or any business development activities fall under professional expenses
Professional subscriptions, local taxes, insurance, etc., are also considered as professional expenses
If you spend something for work as well as personal purposes, be sure to claim a reasonable portion as a professional expense. Ensure you don’t claim -
Personal expenses
Tax payments
Payment to a relative or someone with substantial (20% of profit) interest in your profession
Any expense in cash exceeding ₹ 10,000
Presumptive taxation scheme
A gigster with up to ₹ 50 lakhs in gross annual receipt can simply pay tax on 50% of their gross receipt. In a nutshell, you can claim presumptive expense of up to 50%.
Point to note - Normal tax filing can be made using ITR-3, while presumptive taxation scheme can be filed under ITR-4.
Arriving at Advance Tax Payable
Anxious to find your income tax liability and advance tax payable amount? Simply follow these steps -
Add up your estimated gig incomes during the financial year
Subtract the estimated professional expenses from the income
Add other income estimates, such as income from rent, interest on your savings account, dividends, etc.
Arrived at the net amount? Now, check the tax slab to find out your tax liability. Or, better still, use an income tax calculator
Deduct all the TDS/TCS your clients would deduct during the year from your tax liability
If the final amount is more than ₹ 10,000, you have to pay advance tax
When to Pay Advance Tax
At least 15% of annual estimated tax liability by 15th June
At least 45% of annual estimated tax liability by 15th September, after reducing taxes paid by 15th June
At least 75% of annual estimated tax liability by 15th December, after reducing taxes paid by 15th September
100% by 15th March of your total annual tax liability
FAQs:
1. Do I need to maintain books of accounts as a gigster?
If you need to get your books audited under section 44AB, you must maintain books under the accrual basis of accounting. Otherwise, you can maintain it on a cash or accrual basis, but it must be uniform across all income and expenses.
2. How do I find out my TDS/TCS deductions?
Go to your e-filing account and look for the 'View Form 26AS' option. Here, you can view your tax credit and even download it.
3. What if my estimated income and actual income do not match?
If you have paid more advance tax, you can claim a tax refund. If you have paid less advance tax during the year, make sure you pay at least 90% by 31st March to avoid penal interest.
Open your GIGA Savings Account now!
Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Please note that this is for your general understanding. You must consult your tax advisor for any appropriate guidance.
