In the global era of the internet, we see new jobs popping up almost every day. Jobs that were once impossible to imagine have now become a reality.
Many people earn a lot of money by blogging, freelancing, and even making YouTube videos, and they’ve turned their hobbies into lifetime professions.
As India is one of the strongest IT nations in the world, we can see this trend growing quite rapidly, and many people are now even switching their careers so that they can experience the pleasure of being “independent bosses.”
But not everyone knows how they should pay their taxes for these services, and that’s what we will describe in the lines below.
What are the benefits of filing an income tax return?
The most obvious benefit of filing income tax return (and paying taxes in the first place) is that only the income that you are disclosing counts as your true income.
So, whenever you need to show this income in the future, you can only show the amount that you’ve disclosed in your income tax return.
You’ll also need income tax return whenever you are applying for a loan from a bank. No bank will give you a loan otherwise, so you need to have this report ready in due time.
And, of course, governments are also interested in collecting everyone’s income taxes. They use taxes to cover various different expenses like road constructions and hospital renovations.
They have a legal right to collect income taxes, and in case you try to avoid your obligations, you will risk severe sanctions.
Therefore, you need to pay your taxes regularly, and you need to file your tax income return all year long if you want your business to be 100% legal.
How should we compute our income taxes in India?
Every person who has an income from various sources has to pay their income taxes by following the official tax rates provided by the government.
In this case, you need to take all of your earnings into account. However, only incomes that you are computing will result in taxes that you need to pay.
So, in short, you don’t pay income tax on total revenue but on total income instead. There is an obvious difference between these two terms, and you don’t need to be an expert to understand it.
Total revenue is the gross amount that you’ve received while total income is the amount that remains after depreciation and after you’ve paid all of your expenses.
We can count any amount that we need to pay for the purpose of earning revenue as an expense. So, for instance, any amount that we pay for domain hosting, rent, or electricity can be classified as a pure expense.
This amount is not a part of our income tax return.
However, even though we are not paying taxes on expenses, we still need to track them in a separate file. In other words, we need proof that these expenses really exist in the first place.
What about depreciation?
In order to earn proper revenue, many bloggers, freelancers, and Youtubers buy assets from time to time.
So, if you’ve purchased a laptop, car, or even some office furniture, you are free to subtract these expenses from your total income.
All assets have a lifespan that is usually longer than one full year. So, as a result, all the benefits you are getting from them will last longer than one year as well.
We should also add that, whenever the expense is incurred for any asset, you can’t claim it fully in one go. Instead, the total expenditure will be allocated over the entire lifespan of the asset.
That means that you can claim the full expenditure proportionally instead of claiming everything at once.
This method is called depreciation. You need to show every proof of depreciation in the form of requisite bills when paying your income taxes. The government has already determined the lifespan of each individual asset, so you can easily divide your expenses proportionally.
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Deductions for special investments
In some cases, the government allows deductions for certain investments. If you invest in any options specified by the government, you’ll be able to claim deductions for all of them. You can see the entire list of investments where you are eligible for deductions right here.
Can we avoid paying taxes in some situations?
While everyone needs to pay their taxes, there are some exceptions. For example, if our total income is smaller than the minimum income that is chargeable to tax, we don’t need to file our income tax return.
If filing an income tax return is optional, we need to state that the payable tax is nil.
What is the due date for paying our income taxes?
We need to pay our income tax in the year in which we earned that income. If our income is bigger than 10,000 INR, we have to pay our tax in installments.
This kind of payment is called “advance tax payment.” The due dates are already specified in that case, and we can easily find them online. We can submit the Challan Form and pay our advance tax via the Internet as well.
How should we file our income tax return?
At the end of each year, we need to file a statement that includes all the taxes that we need to pay. This is what we call “income tax return.”
The statement should include the following:
- All the revenues that we’ve earned as well as the sources of those revenues
- All expenditures incurred
- Any investment where we are eligible for a deduction
- The depreciation that we’ve claimed on assets
- The total taxes that we’ve paid already
Any delay will automatically result in sanctions and penalties. If we make a mistake and pay excess tax, we can claim a refund for that additional amount.
In general, as long as we follow the instructions closely, we should have no issues whatsoever.