Legal and Accounting Compliance Every Freelancer Should Know About
As a freelancer, it is easy to put the legal and accounting compliance for freelancers on the backburner. However, being a freelancer is not just being free or independent self-employed worker, but it also means that you have a business running on you. In order to become a successful entrepreneur, it is very important to check the quality of the product or service you offer and most importantly how you organize it and what all you need to comply with.
Accounting and Taxation:
Not only Professionals working Under Trade Name, But Freelancers are also required to follow certain compliances. Most important of it is to File Income Tax Returns under Section 139 of IT ACT.
Section 44AA of Income Tax Act requires that every person who is into the profession of law, medicine, architecture, engineering, accountancy, technical consultancy, interior designing, authorized representative, film artist, company secretary and information technology, mandatorily needs to maintain proper books of accounts.
Rule 6F provides for documents necessarily maintained. As per it The books of accounts include the cash book, journal, ledger, carbon copies of serially numbered bills, original bills of expenses incurred and payment vouchers for petty expenses incurred during the year.
The others are required to maintain it only if their Income from the business/profession exceed Rs. 2.5 lakhs for Financial Year 2017-18 (Earlier it was1.2 Lakhs).
With the introduction of Negative List in Service Tax in Finance Act 2012, all the services included in the negative list are exempted from Service Tax. This has widened the scope of the Service tax net considerably since those services not included in the negative list are now taxable.
As for services not mentioned in Negative List as I.T. Services or engineering/ technical services are now taxable and, you are liable to
Register yourself if gross receipts or aggregate value of taxable service in a financial year exceeds 9 lakhs rupees.
Compulsorily charge service tax on bills raised on clients once the aggregate value of taxable service in a financial year exceeds 10 lakhs rupees.
A Freelancer may also claim deductions similar to those of professionals. To claim deductions and even to run a business you need to be incorporated.
Legal Entities a Freelancer can go for:
To help you decide which entity freelancers, here is a brief overview of common business entities in India. The laws of Each state are different, so it is recommended to consult a lawyer so he or she can advise on current rules and regulations of state before you make a decision.
The simplest and most common entity most freelancers work under is a sole proprietorship. It is an individual running his/her own business. It requires few hassles and less paperwork. As a sole proprietor, you may give your business a different name for marketing purposes.
Partnership Firm / LLP
When two or more individuals go into business, they become a partnership. It may be registered or unregistered. Usually, no government filings ( apart from few tax registrations)are needed to form a partnership, but it is safer for partners to have a written agreement among themselves in order to avoid future complications or disputes on individuals roles and responsibilities or division of profits and losses LLP introduced in 2008, which is an improvement over general partnership.
This gives promoters an invaluable advantage of limited liability & the company can have continuous existence. The company has to be incorporated through Ministry of Corporate Affairs. Not even an audited annual returns need to be submitted to MCA.
One Person Company
OPC is a recently introduced improvement on sole proprietorship firm registration. This gives the promoter an invaluable advantage of limited liability & the company can have continuous existence. OPC has to be incorporated through Ministry of Corporate Affairs. Not even an audited annual returns need to be submitted to MCA. The company can nominate any other person as a director without executive powers.
Potential threats revolve around for business not only from competitors but also government in the form of Penalties if Law is not abided by. Thus by complying with Legal and Accounting Compliance for Freelancers, you can save both money and time at the later stage.
We at Wazzeer have developed a systematic process to get your legal and accounting compliance done seamlessly. We don’t talk jargon 🙂 we maintain a standard level of transparency in delivering our work. I think we should catch-up on a call, let’s connect!