Freelancer – Calculating Tax Payable & Due Dates

In our previous post we looked at how we can calculate the Gross and the Net Taxable Income of a Freelancer.

After computing your Net Taxable Income, are you supposed to pay Tax on this Income? How will such Tax be calculated?

  • If you are less than 60 years of age and your Net Taxable Income is more than Rs 2,00,000, you are liable to pay tax on your income.

Here is how tax will be calculated on your income –

Up to Rs 2,00,000

Nil

Rs 2,00,000 to Rs 5,00,000

10% (less Tax credit under section 87A https://blog.cleartax.in/section-87a-rebate-of-rs-2000/)

Rs 5,00,000 to Rs 10,00,000

Rs 30,000 + 20% of the income in excess of Rs 5,00,000

Greater than Rs 10,00,000

Rs 1,30,000 + 30% of the income in excess of Rs 10,00,000

Surcharge

10% of Income Tax calculated above – applicable if Income is greater than Rs 1 crore (marginal relief available on surcharge)

Education Cess

3% of total of Income Tax + Surcharge (if any)

 

  • If you are 60 years to 80 years old, upto Rs 2,50,000 no tax is payable by you and on the remaining income the slabs above shall apply.
  • If you are more than 80 years old, upto Rs 5,00,000 no tax is payable by you and on the remaning income the slabs above shall apply.

 

How do I pay the Income Tax that is due?

Here’s our very simple and easy guide that tells you how you can pay the tax that is due as calculated above http://cleartax.in/Guide/HowToPayIncomeTaxDue

What is Advance Tax or Self Assessment Tax? When is the Tax Payable due?

If your tax liability is more than Rs 10,000 in a year you will have to pay advance tax in quarterly installments rather than as a lump sum at the end of the tax year. Advance tax is payable and calculated on your Net Taxable Income and therefore takes all heads of income into consideration. The simple way is to compute your income under all heads, for the year, using a reasonable estimate and pay tax on it basis the timeline prescribed below –

Due Date Amount Payable
On or before 15th September of the tax year Not less than 30% of advance tax payable
On or before 15th December of the tax year Not less than 60% of advance tax payable
On or before 15th March of the tax year 100% of the advance tax payable

It is mandatory to pay advance tax. And non-payment or late payment can attract Interest in the form of penalty ( Section 234B https://blog.cleartax.in/penalties-imposed-by-the-income-tax-department-section-234b/ and Section 234C https://blog.cleartax.in/penalties-imposed-by-the-income-tax-department-section-234c/ ).

Note that if there is a shortfall in payment of advance tax due to underestimation or failure to estimate amount of capital gains or amount of lottery income, gambling income – no interest will be levied on such shortfall if advance tax has been fully paid on other incomes and on this specific income whenever the next installment is due or before the end of the financial year.

What if you need to revise your income after paying the 1st and/or the 2nd installment – Yes, you are allowed to revise your estimate of income and whenever your next installment is due you can pay advance tax accordingly. Assuming of course you had no knowledge or intention or receiving such additional income when you first paid your advance tax. You are not required to submit the estimate of income as such – but you must maintain these estimates with you should you require to show these in the future.

What if there is a downward revision in your income and your final tax liability is lower – If total payment of advance tax is higher than the actual total tax liability, you will be refunded the excess amount paid by you. There is no need to make a claim for refund. If your excess amount paid is more than 10% of your final tax liability you will also receive Interest @ 0.5% per month from the IT Department. If you have questions regarding your refund status read here http://cleartax.in/guide/CheckIncomeTaxRefundStatus#refund-questions

Self Assessment Tax Essentially Advance Tax is Self Assessed Tax, we pay advance tax in installments. However, it is expected of you to pay any interest or penalty or any remaining tax at the close of the tax year or the financial year, basis your own self assessment. Therefore, whatever tax is due on income or as penalty or interest must be paid before filing for return and close of the financial year.

In our next few posts we will talk about whether a Freelancer needs to maintain books of accounts. Keep watching out more and also let us know if you would like us to cover any other topics for Freelancers.

Reach out to us support@cleartax.in

 

 

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