Tax calculation in India: How Freelancing taxes are calculated in India?
When I started online freelancing in the year 2013-2014, I am not much aware of freelancing taxes and its calculation from online freelancing earning. That time I was very new to online freelancing world so I thought when I will get projects and earn so decent money then look into tax calculation matter all that.
By 2015, my monthly earning reach up to $500 per month. Still I did not discuss with my about income tax filling. One day CA called me and ask me income details from the online income. In that day he told me that online freelancing income is also a taxable income in India.
I asked him that freelancing website also charges some sort of commission from every transactions what is that?
He simply told me that freelancing charging commission for providing me platform to make money online. Then I come to realize that online income from freelancing is a taxable.
Freelancing websites Term & Conditions:
Freelancer: 10% flat commission from every transaction. Apart from commission it also charges annually membership fee which is in the range of $10-$500. Nothing is free in freelancer.com website. Initially it offer some free bid to apply projects.
Upwork: 20% flat commission from every transaction. Apart from commission it also charges monthly membership fee which is $14.99 per month. Upwork is very costly in the industry.
Guru: 10% flat commission from every transaction. Apart from commission it also charges monthly membership fee which is $8.95 per month. But you can also allow to bid ten projects from your free account.
Fiverr: 10% flat commission from every transaction. No membership plan. Freelancer can bid ten projects daily.
How Income Tax is Calculated in India?
Yes, Freelancing income is purely taxable income. Now the question is how tax is calculated? Here you may see how the tax is calculated.
Suppose you get a project of worth $ 1000 every month. Freelancing websites normally charges the commission of 20% from every transaction.
So your net income is $ 800 per month. If you transfer the money from PayPal then PayPal charges an additional 2 to 5 % commission from every transaction. Apart from Income you also investing some of your money for paying annual or monthly membership plans. Let’s assume that you are paying an additional $10 per month as a membership fee.
Why Freelancers use PayPal account if freelancing websites ready to transfer their income to their bank?
Most of the freelancers start online income as a freelancer and soon they start sub-contracting business modal to make more profit. Alone as a freelancer you can do less project but instead of sub-contracting you have chance to make more money from freelancing by hiring other freelancers. For this they need to have a PayPal account.
Another reason is that if freelancer built a trust with the client then there is no reason to pay additional bucks as commission to freelancing websites. Client directly pay through PayPal.
Now here is the Final Calculation: Freelancing Taxes
Income from the project: $1000/Month
Income after paying commission: $800 /Month
Additional miscellaneous charges: $50 /Month (PayPal and membership fee)
Net income = $750 (52,500INR)
Total income per year = 6, 30,000 INR
Tax waiver limit= 50, 0000 INR
Taxable income = 1, 30.000 INR
So final Tax= 20% of taxable income = 26,000 INR
Why Standard Debit/Credit Card is Required in Online Freelancing?
As I told above, if freelancer built a trust with the client then there is no reason to pay additional bucks as commission to freelancing websites. Client directly pay through PayPal. Even if you hire someone for your project then you also not need to pay through freelancing website to save commission at both end. Hence you need to have PayPal account. You need to have standard debit and credit card to register an account on PayPal.