I worked as a full-time employee for five months of this financial year (FY23) and earned ₹11 lakh. From then on, I have been working as a consultant/freelancer (non-technical) for a couple of firms and receive a fee upon invoicing them from time to time, for my services. I hope to earn ₹10 lakh from this freelance work this financial year. In addition, I will receive rental income of ₹2.5 lakh for FY23. Can I use section 44AD for my freelance work and declare 6 per cent (of ₹10 lakh) as income as I receive all amounts online? Assuming no other income, how will my total tax liability be calculated? TDS @ 10 per cent is deducted from my payments.
Section 44AD is applicable to taxpayers engaged in specified businesses, whereby a fixed portion (minimum 6 per cent) of their turnover is deemed as taxable profits. In case you are rendering professional consultancy services as listed in section 44AA then you could offer your income for presumptive taxation under section 44ADA. The following are considered as professional services eligible to be covered under section 44ADA: legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified (currently authorised representative, film artist, company secretary and information technology have been notified).
In case of presumptive taxation under Section 44AD, you are not required to maintain books of account. Also, all expenses including depreciation are deemed to have been considered while arriving at the 6 per cent. No further expenses can be claimed. If you decide to opt for presumptive taxation scheme, then you are required to follow it for five years. Failure to follow this would result in presumptive taxation not being available for the next five years.
When it comes to taxation, if you are opting for regular tax regime, then you could claim exemptions (such as HRA, LTA, etc.) and eligible payments/investments such as repayment of housing loan, contribution to Provident Fund, life insurance premium, etc can be claimed as a deduction in order to arrive at your total income.
If you are opting for the simplified tax regime, you will not be able to claim any deductions/exemptions referred above.
In both the scenarios you will be taxed at the applicable slab rates. Education cess @ 4 per cent on taxes also needs to be applied. Surcharge at the rate of 10 per cent on taxes will arise when your total income is in excess of ₹50 lakh.
From the total tax payable, regardless of the tax regime opted by you, taxes deducted at source can be reduced and the balance tax dues (if any) can be paid by way of advance tax within the prescribed timelines so as to avoid interest.
The writer is Partner, Deloitte India
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