Remuneration for these white-collar gig workers hinges on factors such as experience, past work quality, expertise, and workload. In case you are planning to be a gig worker, Sudhir Kaushik, CEO & Founder of Taxspanner.com, in a column in ET, explains the tax liability, exemptions and return filing for freelancers:
How are gig workers taxed?
Gig workers fall under the tax rules applicable to self-employed individuals. Any resident with a taxable income exceeding Rs.2.5 lakh in a financial year must pay taxes according to their applicable tax bracket.
Mandatory Tax Filing for Gig Workers:
Yes, gig workers are obligated to file their income tax returns by July 31 of the assessment year. Their returns must include income from all sources, including freelance work, consulting, salary, interest, and capital gains. Since gig workers often face lower Tax Deducted at Source (TDS) rates, they might have to make additional tax payments during filing if their individual tax slab is higher due to their total income. To avoid tax notice, it’s imperative to align ITR details with Form 26AS and AIS. If the total falls below the taxable threshold, refunds can only be claimed through ITR filings.
Available Deductions and Exemptions for Gig Workers:
Gig workers can claim deductions for legitimate business expenses or opt for presumptive income under Section 44ADA. Common deductions encompass office rent, equipment costs, travel expenses, and professional fees. In cases of notified professions, a presumptive exemption of 50% of gross receipts can be availed while declaring ‘income from business and profession.’
Advance Tax Obligations:
Gig workers must pay advance tax if their total tax liability on projected taxable income exceeds Rs 10,000, net of TDS, in a financial year. This is payable on a quarterly basis, with 15% due by June 15, 45% by September 15, 75% by December 15, and the full 100% by March 15 of the financial year.
Understanding Tax Deducted at Source (TDS):
For gig workers offering services to clients or platforms subject to TDS deduction, it is deducted from earnings, including salary, commission, rent, interest, or professional fees. Freelancers can claim TDS while filing their Income Tax Return (ITR), and checking Form 26AS for information. TDS is levied at 10%, but freelancers can only deduct it if they underwent an audit in the previous financial year. Auditing is applicable if the annual gross receipts exceed Rs 50 lakh, with TDS not applicable in such cases.
GST Registration for Gig Workers:
Gig workers should register under the Goods and Services Tax (GST) regime if their total receipts surpass Rs 20 lakh in a financial year (or Rs 10 lakh in certain Northeastern states). Once registered for GST, they must adhere to the prescribed schedule for filing GST returns.