What is Presumptive tax scheme and when to file income tax return?

Jul 20, 2019

I am a full time freelancer who earns around 1.5 Lacs/month. I have started freelancing since Apr/2019. So I have earned around 4-5 lacs until today. If I continue working with the same earning, I will be earning approx 19lacs upto next march. I want to file a ITR.

  • What amount will be taxable ? What is Presumptive tax scheme ?
  • What will be the process for applying ITR?
  • When should I file ITR ?
1 Answer
Jul 21, 2019

Nawaz, I hope you have gone through this question How to compute taxes for a freelancer?

What is presumptive tax scheme (PTS)?

A person engaged in business is required to maintain regular books of account under certain circumstances. To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme (PTS).

A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from tedious job of maintenance of books of account.

In simple words - If you are eligible for the presumptive tax scheme then you don't have to maintain book of accounts (record of income, expenses etc). Usually businesses have to pay tax on profits (income - expenses) but since no book of accounts have been maintained, the Income Tax Act prescribes a fixed rate (% of revenue) as the tax to be paid. This simplifies things.

For Freelancers

Freelancers working for software development, testing, web design etc are eligibile for presumptive taxation scheme under section 44ADA. Checkout the FAQs for this section here - FAQs on Tax on Presumptive Taxation Scheme - Income Tax Department.

Under section 44ADA 50% of your gross revenue i.e. pre-expense revenue, is considered as profits. For example if a freelancer earns 10 lakh rupees then 50% of it i.e. Rs 5 lakh would be considered as profit. This Rs 5 lakh is then added to your income taxed as per the income tax slab.

Advance Tax

Usually businesses have to pay advance tax i.e. the entire tax for the financial year is supposed to be paid in 4 equal instalments - by 15th June, 15th September, 15th December and 15th March. Tax payers under PTS are exempt from advance tax and they have to pay their taxes on or before 15th March.

Answering your questions

What amount will be taxable?

If you earn Rs 19 lakh in the entire financial year (April 2019 to March 2020) then Rs 9.5 lakh would be added to your taxable income. You have mentioned that you are a full time freelancer i.e. no income from job/salary so your taxable income will be Rs 9.5 lakh. If you also had income from a salaried job then this Rs 9.5 lakh would be added to your taxable income from salary.

What will be the process for applying ITR?

You can do it online yourself. Login to the income tax filing website and file ITR4. You can take help of a tax filing professional to make things easier. Pay the tax on any date before 15th March 2020.

When should I file ITR ?

You have mentioned that you started working as a freelancer in April 2019. For the income earned between April 2019 and March 2020, you need to file income tax next year (2020). For the previous year (April 2018 to March 2019) you have to file income tax this year (due date is 31st July 2019).

I hope this answers your questions.

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