Income Tax 101: A complete guide on tax implications for freelancers and gig workers

Key takeaways:

• Freelancers and gig workers earn income via projects and are subject to paying income tax on their earnings.
• Freelancers and gig workers are subject to tax slabs, rates, and deductions as regular salaried professionals.

In today’s day and age, many working professionals are choosing to deviate from the standard 9-5 job structure, opting for the increased autonomy freelancing provides. A freelancer, or gig worker, is a working professional usually employed on a project basis, allowing for greater flexibility and freedom. While freelancing may not be the traditional way to make a living, it has gained mainstream popularity and fetches a sizeable income. However, a common question lingering in the mind of most taxpayers is whether income earned via freelancing or the gig economy is taxable or not. Here’s everything you need to know about the tax liabilities of a freelancer or gig worker.

Is income from freelance or gig work taxable?

According to the tax regulations in India, freelancers and gig workers are liable to pay tax on income earned from their projects and affiliations. As per the Income Tax Act, of 1961, any income an individual earns by applying their physical or mental abilities is categorised as ‘profit and gains from business and profession’. Since freelancers utilise their intellectual and physical skills to earn a living, their income will be deemed as profit and will be liable to tax.

A freelancer or gig worker’s total income will comprise the sum of any funds they receive while carrying out their profession. If a freelancer or gig worker receives payments via banking channels, a simple look at the bank statement will give them an idea regarding their total income.

How much tax does a freelancer or gig worker have to pay?

A freelancer or gig worker must tax just like a salaried professional does. Whether a freelancer is paying tax under the old or the new regime introduced in 2023, rates will apply as per the slab they fall under. The income tax slabs, along with the rates applicable for both the old and new regimes, are given in the table below:

If a freelancer or gig worker earns a gross annual income of more than ₹1 crore, they must conduct a tax audit. Additionally, if a freelancer charges any fee exceeding ₹30,000, they must pay TDS (Tax Deducted at Source) at 10%.

What exemptions or deductions can freelancers and gig workers avail of?

Freelancers and gig workers can deduct any expenses they incur while executing their duties and earning their income, including money spent on supplies, furniture, transportation, and so on. Additionally, they can avail of deductions listed under Section 80C to 80U under the Income Tax Act, 1961. These sections include deductions on life and medical insurance premiums, payments made towards investment instruments, payments made for education and home loans, rent, donations towards social causes, and so on.

How can freelancers and gig workers file income tax?

A freelancer or gig worker can file income tax by following the steps given below:

Step 1:

Figure out the total income earned during a financial year i.e.: from April 1st to March 31st.

Step 2:

Evaluate the expenses and deductions that can be claimed from the total income earned.

Step 3:

Choose either ITR-3 or ITR-4 and fill out the required fields by logging into the Income Tax e-filing portal.

Conclusion

Whether you’re looking to supplement your income or switch to a freelance career, it’s essential to know how to factor in income earned through gigs while filing tax returns. Now that you're aware of how freelancers and gig workers are taxed, evaluate your income accordingly and file your taxes on time.