As a freelancer, the bullseye hit is often getting that first client, and for some it is closing a deal with an international client.
Freelancers often find that while starting out is simple, as they begin to earn income, things become complicated due to the added responsibilities of tracking and filing taxes, especially if they’re working with international clients.
In these situations, questions such as how to receive international payments in India and how to manage taxes as a global freelancer further complicate the situation. Freelancers are often independent business owners. And, generally, one freelancer can have multiple clients from multiple countries. This means having varied sources of income. That’s where taxes get complicated to compute.
Additionally, no matter the effort, freelancers cannot neglect these legal procedures. That’s where help may be necessary. This article will provide guidance and a straightforward method for completing these tasks. Let’s start with the basics.
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What Are Taxes For Freelancers?
Taxes for freelancers are payments made to the government based on their earned income. This income can come from various sources such as clients, projects, or sales of products.
The amount of tax owed is determined by the total income earned, deductions, and the tax laws of the country in which the freelancer operates. Freelancers are responsible for accurately tracking their income and expenses and filing taxes on time. Failure to comply with tax laws can result in penalties, fines, or legal consequences.
Moving on to the next bit, how to pay these taxes.
Accepting International Payments
International payments can be received through various methods, including digital payment platforms such as Refrens with minimal exchange fees. Refrens international payment gateway is a secure, reliable, and easy-to-use payment gateway for freelancers.
As a freelancer, there are several steps involved in receiving international payments:
- Choose a payment method: Determine the best payment method for your needs, such as Refrens, TransferWise, wire transfer, check, or credit card payment.
- Set up a bank account: If you don’t already have a bank account, set one up to receive your international payments. Ensure that the bank account is in a currency that is widely accepted and can be easily converted to your local currency.
- Obtain a PAN: If you haven’t already, obtain a Permanent Account Number (PAN) from the Indian government to use for tax purposes.
- Provide payment information to clients: Provide your payment information, such as your bank account details or PayPal account information, to your clients.
- Receive payment: Once your client has initiated the payment, the funds will be transferred to your bank account. If you are using PayPal or TransferWise, the funds will be credited to your account in real-time.
- Track payments: Ensure that you keep a record of all international payments received and make sure that they match the information provided by your clients.
- Convert currency: If necessary, convert the funds from your bank account into your local currency.
- File taxes: Report the international payments received as income on your tax return and pay any taxes owed.
Other popular methods of receiving international payments include wire transfers, checks, and credit card payments. Each method has its own set of advantages and disadvantages, and it’s important for freelancers to evaluate their needs and choose the best option for their specific situation.
Importance Of Having Pan & Bank Account
Having a PAN (Permanent Account Number) and a bank account in India is crucial for freelancers who wish to receive international payments. A PAN is a unique 10-digit number assigned by the Indian government to individuals for tax purposes. It is mandatory for all individuals, including freelancers, to have a PAN in order to receive payments and file taxes in India.
Having a bank account in India is also important as it allows freelancers to receive payments from their clients in a secure and convenient manner. A local bank account makes it easier for freelancers to access their earnings and manage their finances.
Furthermore, having a PAN and bank account in India allows freelancers to be in compliance with Indian tax laws and regulations. It ensures that they can accurately track their income and expenses, and file taxes in a timely and accurate manner. Overall, having a PAN and bank account in India is essential for any freelancer looking to receive international payments and handle their taxes efficiently.
Overview Of Tax Requirements For Freelancers In India
As a freelancer in India, you are responsible for reporting your income and paying taxes on your earnings. Here is an overview of the tax requirements for freelancers in India:
- Register for taxes: Freelancers in India are required to register for taxes and obtain a PAN.
- Report income: Freelancers are required to report all their income, including international payments, on their tax return.
- Pay taxes: Freelancers in India are required to pay taxes on their income. The tax rate for freelancers depends on their annual income and is based on the Indian tax slab system.
- Keep accurate records: Freelancers are required to keep accurate records of all their income and expenses, including international payments, to ensure compliance with tax laws.
- File tax returns: Freelancers are required to file their tax returns annually, typically by July 31st of each year.
- Stay informed: Freelancers should stay informed about changes in tax laws and regulations and seek professional advice if necessary.
It is important for freelancers to be aware of their tax obligations and comply with all relevant laws and regulations. Failure to do so may result in fines and penalties. It is recommended that freelancers seek professional advice to ensure that they are in compliance with all tax requirements.
Explanation Of The Calculation Of Tax
The calculation of tax payable for freelancers in India is based on their total income earned during the financial year. The tax rate for freelancers depends on their annual income and is based on the Indian tax slab system. Here is an overview of the tax calculation for freelancers in India:
- Total income: Calculate your total income for the financial year, including all earnings from freelancing work, whether in India or abroad.
- Deduct allowable expenses: Deduct any allowable expenses, such as business expenses, from your total income to arrive at your taxable income.
- Determine the tax slab: Based on your taxable income, determine the tax slab you fall into. The tax slabs for the financial year 2022-2023 are as follows:
- Up to 2.5 lakhs: Nil
- 2.5 lakhs to 5 lakhs: 5%
- 5 lakhs to 7.5 lakhs: 10%
- 7.5 lakhs to 10 lakhs: 15%
- 10 lakhs to 12.5 lakhs: 20%
- 12.5 lakhs to 15 lakhs: 25%
- Above 15 lakhs: 30%
- Calculate tax payable: Multiply your taxable income by the tax rate applicable to your tax slab to arrive at your tax payable.
- Deduct any tax credits: Deduct any tax credits, such as TDS, to arrive at the final amount of tax payable.
- Pay taxes: Pay the tax payable by the due date, typically July 31st of each financial year.
Things to Keep in Mind while Handling Taxes as an International Freelancer
From accepting payments to knowing how to accommodate earnings and file taxes, there are things you need to get checked. Here are some of these-
It is a presumptive taxation scheme. Under this scheme, the income is on the basis of 8% of turnover. But, if you accept digital receipts and payments, you will be taxed on the basis of 6% of turnover. And, you don’t need to maintain any books and hefty account records for this!
Further, 44AD says that if you are a freelancer of writing, designing, accountants, engineers, consultants, and so forth, you are exempt to pay taxes up to the turnover of 50 Lakhs (INR)! To further file the tax, freelancers need to fill out the ITR-4 form!
Once you’ll dive into the process of filing taxes as a freelancer, you’ll realize how important advance tax and TDS deductions are! Advance tax is also known as pay-as-you-earn and therefore is collected in 4 quarterly installments if the earnings exceed more than 10,000 (INR).
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You are Responsible For Filing Taxes!
No matter from which country you are or from which country your client is, only you are responsible for accommodating your income and filing taxes. Checking the sources of income, exchange fees, and filing forms, all is your responsibility.
So, make sure you do all these things on time!
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Taxes from the Client’s Country
One of the best pieces of advice for Indian freelancers is; Comprehend and get complete awareness about DTAAs!
If you have international clients, taxes of the client’s home country also come into play. That’s where you need to be a little cautious while calculating your total income. Also, this further adds that your income will be double taxed, both from the source’s country and from your residence country.
If you are an Indian, you have a chance to save yourself from double taxes. India has gone into an agreement of Double Tax Avoidance Agreements (DTAAs) with a few countries. This can ensure you don’t get taxed twice on your income from international clients. So, before proceeding and closing a deal with your client, check if they are on this list of agreements. Also, visit your local bank branch to gather the right and credible information on how your currency exchange and tax filing will function.
Know All Taxes You Need to Pay!
Freelancers come under the category of self-employed. And, because of this self-employment tax of 15.3% can also apply to freelancers in some countries. This just highlights the importance of emphasizing tax filing rules and regulations carefully!
This can help you a long way in sorting “How to handle taxes as an international freelancer”!
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Showing deductions in your file can trim your tax amount to significant margins. But, only when you do it right. Typically, freelancers can show deductions like food-related expenses, business meetings, equipment charges, office expenses, and so on! This can help you mitigate the amount of taxes and leverage your income!
Some of the tax deductions for freelancers are Section 80D, Section 80C, Section 80E, Section 80U, and Section 24(b)!
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Bounty Tip For Freelancers Accepting International Payments
No one can get rid of taxes and they should not, as lawful residents of any country. But, every one of us wants to get some deductions if they’re genuine.
As a freelancer, you have a lot of things to manage. Be it delivering your services, billings, meetings, and whatnot! You certainly would not need to get some extra on your plate. That’s where tax professionals can be of great help. These trained professionals can help you calculate tax redemptions, and deductions, which forms you need to fill out as a freelancer, and so forth!
This can mitigate any hustle for you, and reduces your chances of making mistakes, missing your tax filing deadline, etc.
Taxes can be scary. And, when you are a freelancer and are not associated with a company, things can get pretty confusing. Be it in terms of selecting the best payment gateway, listing forms you need to fill, and so forth! That’s where you might need help!
Refrens platform stands out among various software and platforms that assist with receiving international payments in India. It offers a secure, reliable, and fast settlement platform with competitive exchange rates to ease the worries of freelancers. With Refrens, freelancers can keep track of all their payments received, along with detailed exchange rates, making it easier to manage their taxes. Choose Refrens to simplify the process of receiving international payments and organizing your tax situation.
Try, register and avail the benefits you deserve!