Gig workers are considered self-employed individuals and are subject to the same income tax laws and regulations. This means that they have to pay taxes on their income based on their relevant tax bracket. Every resident whose taxable income is more than Rs.2.5 lakh in a financial year must pay taxes. Additionally, gig workers must file their income tax returns by 31 July of the assessment year. They need to declare income from all sources, including freelance work, consulting, salary, interest, and capital gains.
One important aspect for gig workers to consider is the Tax Deducted at Source (TDS) rate. TDS is generally lower for gig workers’ receipts, so they may have to pay additional tax while filing their income tax returns if their individual tax slab is higher due to the total income. To avoid any tax notice, it is crucial to match the Income Tax Return (ITR) details with Form 26AS and AIS.
Various deductions and exemptions are available to gig workers. They can claim deductions for legitimate business expenses, such as office rent, equipment costs, travel expenses, and professional fees. Under Section 44ADA, gig workers engaged in notified professions can claim 50% of gross receipts as presumptive exemption while declaring ‘income from business and profession’. These deductions help reduce the taxable income and ultimately the tax liability.
Gig workers may also have to pay advance tax if their projected taxable income for the financial year is Rs.10,000 or more, net of TDS. Advance tax is to be paid on a quarterly basis, with specific percentages due by certain deadlines. For instance, 15% of advance tax is to be paid by 15 June, 45% by 15 September, 75% by 15 December, and the remaining 100% by 15 March of the financial year.
TDS is an important consideration for gig workers. If they are providing services to clients or platforms that are required to deduct TDS, it will be deducted from their salary, commission, rent, interest, or professional fees. While filing their income tax returns, gig workers can claim the TDS and obtain information from Form 26AS. TDS is deducted at a rate of 10%, but freelancers can only deduct it if they have been audited for the previous financial year. Gig workers can only be audited if their annual gross receipts exceed Rs.50 lakh. In case the gig worker has not been audited, TDS won’t be applicable.
Another consideration for gig workers is the Goods and Services Tax (GST). If their total receipts exceed Rs.20 lakh in a financial year (Rs.10 lakh for certain Northeastern states), gig workers must register under GST. Once registered, they need to file GST returns as per the prescribed schedule.
In conclusion, gig workers need to have a clear understanding of the income tax laws and regulations that apply to them. Filing tax returns accurately and on time is crucial to avoid penalties or notices. By taking advantage of deductions and exemptions, gig workers can reduce their taxable income and ultimately their tax liability. It is also important to keep track of TDS deductions and match the ITR details with Form 26AS and AIS. Lastly, gig workers should register under GST if their total receipts exceed the specified limit. Being aware of these tax considerations helps gig workers streamline their financial responsibilities and ensure compliance with the law.
