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Income Tax for freelancing services

Manigandan (50 Points)

10 May 2025

Hi,

I started working as a freelancer providing chip design services to a semiconductor company. My first phase of work got over and I received the payment and the company said it is inclusive of GST. Soon I am going to start next phase and I expect my gross annual income from freelancing to be around 50 Lakhs for FY26. I am working from home residing in TamilNadu and my company is located in Bangalore, Karnataka. Can someone please help me understand the tax structure (GST and Income tax) applicable to me and ways to minimise the tax outgoing. Also please let me know if I am eligible for Sec44ADA if I can save tax.

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Rama chary Rachakonda (Master in Accounts & high court Advocate) (8423 Points)
Replied 10 May 2025

As a freelancer providing chip design services, you'll need to understand the tax implications of your work. Here's a breakdown of the tax structure and ways to minimize tax outgoings: GST Implications -

*GST Registration*: Since your annual turnover is expected to exceed ₹40 lakhs, you'll need to register for GST. -

*GST Rate*: The GST rate for services is typically 18%. However, you can claim input tax credit (ITC) on GST paid on inputs and services used for your business. -

*Place of Supply*: As you're working from home in Tamil Nadu and providing services to a company in Karnataka, the place of supply would be the location of the recipient (Karnataka). Income Tax Implications -

*Income Tax Slab*: As a freelancer, your income will be taxed according to the individual income tax slab rates. -

*Section 44ADA*: As a professional (freelancer), you can claim a deemed profit of 50% of your gross receipts, subject to certain conditions. This can help reduce your taxable income. Eligibility for Section 44ADA -

*Conditions*: To be eligible for Section 44ADA, your gross receipts from freelancing should not exceed ₹50 lakhs in a financial year.

- *Deemed Profit*: You can claim a deemed profit of 50% of your gross receipts, which would be considered as your business income. Ways to Minimize Tax Outgoings -

*Claim Business Expenses*: Ensure you claim all eligible business expenses to reduce your taxable income. -

*Take Advantage of ITC*: Claim ITC on GST paid on inputs and services used for your business to reduce your GST liability. -

*Section 44ADA*: If eligible, claim the deemed profit under Section 44ADA to reduce your taxable income.

- *Invest in Tax-Saving Instruments*: Consider investing in tax-saving instruments like PPF, NPS, or ELSS to reduce your taxable income. Additional Considerations -

*GST Returns*: Ensure you file your GST returns accurately and on time to avoid penalties. - *Income Tax Returns*: File your income tax returns accurately and claim all eligible deductions.

- *Consult a Tax Professional*: Consider consulting a tax professional or chartered accountant to ensure you're meeting all tax compliance requirements and taking advantage of available tax savings [1].

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