New freelancers always struggle with the very important “how to calculate income tax” due to unawareness of tax guidelines. Freelancers are also liable to pay income tax like any salaried person according to expense and receipts. The distinct feature of freelancer tax guidelines is they get deduction on the expenses that has been done to complete a job.
To start with the income tax calculator process, the first obvious thing needed is the gross income which can be easily calculated from bank statement. From the bank account an credit card statement, the gross income or receipts can be prepared. To calculate expenses such as telephone bill or electric or internet bill use the billings you have received from the operator.
Income tax act allow you to deduct the amount that has been used as investment purpose or usual expenses. Usual expenses include rents, telephone cost, meal& travel expenses that is associated with work, and other investment expenses are eligible to get deducted from the gross calculation. If you have been employed for part of the year than the answer to your “how to calculate income tax” question will be a different. You have to add the salaried income under the head income section.
Deduction can be claimed as per guided in the Section 80 of Income Tax Guidelines which have listed all the eligible deduction guidelines. For availing Provident Fund or NSCs, deductions can be claimed according to section 80C whereas, the section 80D allow you to deduct the expenses. When all the deduction has been made, now you can calculate the tax dues on the final amount using income tax calculator available from official website.
Next thing you need to know as a freelancer is about the advance tax which means paying tax at a frequent time-gap instead of paying in a whole amount. This is applicable if the tax liability exceeds the margin of 10,000 rupees a year. The answer to “how to calculate income tax” in case of advance tax is estimating income and expenses on a reasonable basis.
The ITR-4 form is the accurate form to be used by a freelance in order to submit income tax returns. Calculation can be done with maintaining these guidelines listed above or there are online income tax calculator available from internet platform which can be used for the same.