Tax liability of a freelancer

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

01 January 2011 Hi,

I am a freelancer and registered with various freelancers websites available. The project bids and payment is done in United States dollars and after paying the websites fees and payment transfer charges, I get paid in dollars directly to my bank account. The earnings are received in INR in my wife's HDFC bank account.

I would like to know the liability of Income tax in this case on me as well as on my wife.

CA LOKESH KASAT, FCA, M.Com

CA LOKESH KASAT, FCA, M.Com (Expert)
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01 January 2011 It will be clubbed in your hands, and will form part of your total income

Querist : Anonymous

Querist : Anonymous (Querist)

01 January 2011 Thanks for the reply.

But the money is paid in the account of my wife. All ledger statements are provided in the name of my wife. Shall it be considered my income or my wife's income?

Querist : Anonymous

Querist : Anonymous (Querist)

01 January 2011 And apart from that I've spent about 1 lakh towards Internet cost, Computer, embedded device required for the work. All these items are purchased in the name of my wife. Can I get the depreciation deduced as expense from the total income?

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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26 July 2025 This is a great and very relevant question, especially for freelancers working from India with earnings routed through different channels.

Let’s break this into parts and explain clearly how Indian **Income Tax Act** treats such cases.

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### 🔹 **1. Whose Income Is It?**

Even though the **income is credited to your wife's bank account**, if the work is **performed by you**, then:

* **It is your income**, not your wife's.
* This is because income is taxed based on **"who earned it"**, not whose account it went to.
* So, it **will be clubbed with your income** under the **“Income from Business or Profession”** head.

**Reference**: Section 64 of the Income Tax Act (Clubbing of Income).

---

### 🔹 **2. Is Your Wife Liable to Pay Tax on This Income?**

No, **your wife is not liable**. Since:

* She is not doing the work,
* The income is not arising out of her skills or efforts,
* She is merely a **conduit for receiving funds**,

The income is legally **yours** and will be **taxed in your hands**.

---

### 🔹 **3. Can You Claim Expenses/Depreciation on Equipment & Internet?**

Yes, but with **some conditions**.

Even though the **expenses and assets (like computer, device, etc.) are in your wife's name**, the key points are:

#### ✅ You **can claim depreciation and expenses** IF:

* The **payment was made from your income**, and
* The assets are **used for your professional work**, and
* You can **prove usage for business** (invoices, bank records, etc.).

So, in your case:

* If the ₹1 lakh was **spent for business purposes**, and
* You can substantiate that you are using those assets,

Then you can **claim depreciation** on the capital assets (like computer, embedded device) and **deduct Internet costs** as **business expenditure**.

---

### 🔹 **4. Depreciation Details (For Freelancers under ITR-3)**

If you’re filing under **ITR-3**:

| Asset Type | Depreciation Rate |
| ----------------- | ------------------------------------------------- |
| Computers/Laptops | 40% (written down value method) |
| Embedded systems | Usually 15–40% (depending on classification) |
| Internet Charges | 100% allowed as business expense in the same year |

You must **maintain records** of:

* Asset purchase invoices
* Proof of payment
* Business usage (logbooks, work records, etc.)

---

### 🔹 Summary

| Question | Answer |
| ---------------------------------------------------- | -------------------------------------------------- |
| Is the income taxable in your hands? | ✅ Yes |
| Is your wife liable for tax? | ❌ No |
| Can you claim depreciation on assets in wife’s name? | ✅ Yes, **if you prove usage and payment for work** |
| Can you deduct internet and related expenses? | ✅ Yes, fully deductible under business expenses |

---

Let me know if you want help with:

* Drafting depreciation schedules
* Picking the right ITR form
* Estimating your advance tax payments

Or anything else tax-related!

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