Earning global income as a freelancer? Key income tax provisions you must know
Freelancing is a growing pillar of India’s digital economy, especially in the cross-border gig space. Many professionals now offer services—design, tech, consultancy, writing—to clients based overseas. But as the work goes global, so does tax compliance. Understanding how foreign remittances and freelance income are taxed in India is crucial to staying compliant and avoiding penalties.
For Indian residents, all income—whether earned in India or abroad—is taxable in India. This includes payments received from foreign clients for freelance work. Such earnings are treated as ‘Profits and Gains of Business or Profession’, and tax is computed after deducting allowable expenses like laptops, internet costs, software subscriptions, salaries, etc.
Simplified route: Section 44ADA
To reduce paperwork, many freelancers opt for the presumptive taxation scheme under Section 44ADA. This section applies to professionals in fields like legal, medical, engineering, interior design, and other notified services. If annual gross receipts are up to ₹50 lakh (or ₹75 lakh, provided cash receipts stay under 5%), only 50% of the gross amount is deemed taxable income. If actual income is higher, the taxpayer must declare the actual figure.
Although Section 44ADA exempts freelancers from maintaining detailed books or undergoing tax audits, it’s advisable to keep basic records—such as invoices and receipts—to support claims if questioned by tax authorities. Advance tax must be paid by 15 March of the financial year, and freelancers opting for this scheme don’t need to fill in a balance sheet or profit and loss account in their Income Tax Return (ITR).
Audit under Section 44AB becomes mandatory if:
- Gross receipts exceed ₹50 lakh ( ₹75 lakh if cash receipts do not exceed 5%).
- Income declared is less than 50% of gross receipts, andtotal income exceeds the basic exemption limit.
Relief from double taxation: FTC
Freelancers who earn income from countries that deduct taxes at source may be eligible to claim Foreign Tax Credit (FTC) in India. FTC is crucial in avoiding double taxation, but claiming it requires adherence to several formalities.
Form 67 must be submitted online before the end of the assessment year in which the income is earned. Freelancers also need a valid Tax Residency Certificate (TRC), which can be obtained by filing Form 10FA with the local Assessing Officer. Upon verification, Form 10FB is issued, confirming the taxpayer’s residency status.
To benefit from reduced tax rates under the Double Taxation Avoidance Agreement (DTAA), freelancers must provide a TRC along with documents such as a No Permanent Establishment declaration, as required by the foreign jurisdiction.
FTC is more than just a compliance checkbox—it serves as a vital relief mechanism for Indian taxpayers earning income abroad. Yet, despite its importance, considerable ambiguity continues to cloud FTC provisions under Indian tax law and various DTAAs.
To minimise the risk of litigation, taxpayers need to navigate these provisions cautiously. This means not only understanding the interplay between Indian regulations and those of the source country, but also closely examining applicable treaties.
Filing your return
Freelancers can choose between ITR-3 and ITR-4, depending on the nature of their income and disclosure requirements. They must disclose all foreign income and assets in Schedule FA (Foreign Assets) of the return. If claiming FTC, additional details must be filled in Schedule TR (Tax Relief) and Schedule FSI (Foreign Source Income), which cover foreign tax paid and income earned abroad. If the total income exceeds ₹1 crore, freelancers must also disclose their assets and liabilities in Schedule AL (Assets and Liabilities).
Importance of FIRC
A Foreign Inward Remittance Certificate (FIRC) is another key document for freelancers receiving international payments. Issued by banks, the FIRC confirms that the payment originated from a foreign source and entered India via legal banking channels.
This certificate is often essential to prove that the income qualifies for FTC or benefits under a DTAA. In case of scrutiny or enquiry by the tax department, an FIRC serves as reliable evidence to substantiate claims about foreign earnings.
FIRCs are also useful for distinguishing genuine gifts from taxable income. When receiving money from relatives abroad, an FIRC—supported by a gift deed or declaration—helps establish the nature of the transfer, ensuring the gift is not wrongly taxed.
Hitesh Kumar is a chartered accountant.
The article reflects the author’s views based on current tax laws and judicial precedents as of the date of publication. Readers are advised to consult with tax professionals before taking any action.
