Tax on Profession Income

The first thing that comes to mind when we hear the term “Self-employed or Freelancer” is a person who is his own employer and has the freedom to manage time as he pleases. But, everything has a cost, including the satisfaction of working for yourself!

When it comes to increasing tax obligations, we are all stuck. Without a doubt, working as a freelancer is similar to running a business because you deal with various clients and provide them with specialized services like finance (CAs), medicine (DR.s), legal (advocates), consulting (engineers), Artists, Architecture, software consulting service etc.

The common feature in the case of both profession and business is that the object of carrying them out is to derive income or make a profit.

The following points will be helpful if the only thing that stresses you out is how to file your taxes and understand the procedure.

  • The finance act 2016-17 introduced a presumptive taxation scheme for income from business and profession.
    • A professional can opt for the presumptive scheme if their gross receipts are less than 50 lakhs in a financial year. If it is opted for, 50% or actual profit, whichever is higher needs to be declared as profit.
    • A tax audit will be applicable if the profit is less than 50% of the gross receipts or there is a loss.
    • The person cannot claim expenses such as rent, commutation, telephone bills, etc. However, a deduction under section 80 is allowed to be claimed.
    • Advance tax liability shall not be quarterly. It can be paid anytime before 15 March of the financial year.
    • ITR-4 is to be filed. Income from one house property and salary can also be reported in this form.
  • If the income exceeds ₹50 lakhs, the professional will be required to maintain books of accounts and get an audit done.
  • Advance tax needs to be deposited quarterly on or before the due dates if the presumptive scheme is not opted for.
  • However, you cannot file this form if you have any capital gains income or own more than one house property. You will have to file ITR-3 even if opted for the presumptive scheme.

Let’s understand with an example.

Let’s say Rajesh is a music teacher. He has also worked for a Bollywood music company, T Series. In FY 2022-23, he earned ₹45 lakhs. He also has made an investment of ₹1 lakh in PPF. What will be his tax liability if he

  1. opts for presumptive taxation as he does not maintain books of accounts.
  2. does not opt for presumptive taxation. He incurred various expenses such as travel, and repair of instruments amounting to ₹15 lakhs

Answer: Since his income is less than 50 lakhs, he is eligible to opt for the presumptive scheme. His tax liability as per the old regime is as under:

From the above table, it is clear that Rajesh will be able to save 2,25,000 if he opts for the presumptive scheme.

Have questions? Shoot’em below.

Thank you. My wife is doing freelance (preparing education materials) to the couple of agencies. Can she do deduction of 50 % presumptive taxation scheme under section 44ADA

Hi @Srikanth

Yes, if her gross receipts in a financial year are up to ₹50 lakhs, then she can opt for the presumptive scheme under section 44ADA.

What is the taxability of professional income received from abroad in foreign exchange by an indian resident?

Hey @cvijay,

The professional fee will be taxed as per slab rate and should be reported under the “income from business and profession head”. You can also opt for the presumptive taxation scheme if the conditions are met.

Hope this helps!

Thanks, Ma’am.

So, no special treatment / concession / deduction to / from Income received in Forex. Is it so?

Hey @cvijay,

No, it will be taxed as per slab rates only.

Thanks for sparing your valuable time, Ma’am.

44ADA will be available to that Income in forex, too. Pl confirm.

Hi @cvijay

Yes, professional fees received in forex will also be eligible for the presumptive scheme u/s 44ADA.

Hope this helps!