Tax Liability for Freelancers in India Earning 24 LPA
As a freelancer in India earning 24 lakh per annum (LPA), understanding your tax obligations is crucial. This article delves into the process of calculating your minimum tax liability while considering key deductions and the various tax regimes available. We'll also explore how the presumptive taxation scheme can simplify your tax calculations.
India's Tax Slabs for FY 2023-24
To determine your tax liability, it's essential to understand the current income tax slabs in India. The tax brackets have been updated for the fiscal year 2023-24. Here's a breakdown:
New Regime
Up to 2.5 lakh: Nil 2.5 lakh to 5 lakh: 5% 5 lakh to 7.5 lakh: 10% 7.5 lakh to 10 lakh: 15% 10 lakh to 12.5 lakh: 20% 12.5 lakh to 15 lakh: 25% Above 15 lakh: 30%Old Regime
Up to 2.5 lakh: Nil 2.5 lakh to 5 lakh: 5% 5 lakh to 10 lakh: 20% Above 10 lakh: 30%Deductions and Expenses
As a freelancer, you can deduct certain expenses from your income to reduce your tax liability. These include:
Business expenses such as office rent, utilities, and supplies Deductions under Section 80C up to 1.5 lakh for investments in specified instruments Deductions under Section 80D for health insurance premiums Presumptive taxation scheme under Section 44ADA, allowing you to declare 50% of your gross receipts as income, simplifying your tax calculationExample Calculation
Assume a business expense of 6 lakh.
Gross Income: 24 lakh Less: Business Expenses: 6 lakh Net Income: 18 lakhLet's calculate the tax for both the New Regime and Old Regime:
New Regime Calculation
0 (Up to 2.5 lakh) 12,500 (2.5 lakh to 5 lakh) 0 (5 lakh to 7.5 lakh) 0 (7.5 lakh to 10 lakh) 0 (10 lakh to 12.5 lakh) 150,000 (12.5 lakh to 15 lakh) 135,000 (Above 15 lakh, 30% on 4.5 lakh)Total Tax before Cess: 25,000
Cess: 4% of 25,000 1,000
Total Tax Payable: 25,000 1,000 26,000
Old Regime Calculation
0 (Up to 2.5 lakh) 2,500 (2.5 lakh to 5 lakh) 50,000 (5 lakh to 10 lakh) 37,500 (10 lakh to 15 lakh) 30,000 (15 lakh to 20.5 lakh, 30% on 5.5 lakh)Total Tax before Cess: 112,500
Cess: 4% of 112,500 4,500
Total Tax Payable: 112,500 4,500 117,000
The Presumptive Taxation Scheme
The presumptive taxation scheme under Section 44ADA allows professionals to declare 50% of their gross receipts as income. This can significantly reduce the taxable income and thus the tax liability. For example, if your gross receipts are 24 lakh:
Deductible Income: 50% of 24 lakh 12 lakh Net Income: 12 lakh - Business Expenses (6 lakh) 6 lakhUnder the New Regime:
Total Tax Payable: (6 lakh between 5 lakh to 7.5 lakh) 15% of 2.5 lakh 3,750
Cess: 4% of 3,750 150
Total Tax Payable: 3,750 150 3,900
Final Consideration
The actual tax you pay may vary based on additional deductions and the tax regime you choose. To optimize your tax liability, it is advisable to consult with a tax professional or accountant. Always ensure compliance with current tax laws to avoid any legal issues.
Conclusion
Understanding your tax obligations as a freelancer in India can be complex, but breaking it down into clear steps and utilizing available deductions can significantly reduce your tax liability. Whether you opt for the New Regime, Old Regime, or the presumptive taxation scheme, proper planning is key to managing your tax liabilities effectively.