Because freelancers are not our employees and we don't pay taxes on payouts, they must declare any income received via Solar Staff by themselves.
To carry on tax accounting in India for your Solar Staff income, you need to:
Register at the tax office
Determine the applicable tax obligations
Tax residence
Taxation of individuals in India is based on their residential status in the relevant tax year, which can be as follows:
A resident and ordinarily resident (ROR) is a person who meets one of the following criteria:
Physical presence in India for a period of 182 days or more in the tax year
Physical presence in India for a period of 60 days or more during the relevant tax year and at least 365 days in aggregate in four preceding tax years
A resident but not ordinarily resident (RNOR) is a person who meets one of the following criteria:
Being a non-resident for nine out of ten tax years preceding the tax year
Physical presence in India for 729 days or less during seven tax years preceding the tax year
A non-resident (NR) is a person who does not meet any of the above criteria.
The scope of income taxation differs as per the residential status of an individual:
ROR: Subject to tax in India on their worldwide income, wherever received.
RNOR: Subject to tax in India only on income that accrues/arises or is deemed to accrue/arise in India, or is received or deemed to be received in India, or is from a business controlled in India. RNORs are not subject to tax in respect to their income earned and received outside of India.
NR: Subject to tax in respect of income received in India only. Income earned and received outside of India is not taxed.
India has double taxation avoidance agreements with a number of countries (full list), the provisions of which may override the applicable tax residence rules and other provisions of national legislation.
Taxpayer registration
Account and identification numbers in India:
Permanent Account Number (PAN) is a unique 10-digit alphanumeric code obtained by every taxpayer in India. Individuals who are not Indian citizens but receive taxable income in India must also obtain a PAN.
Tax Deduction and Collection Account Number (TAN) is a unique 10-digit alphanumeric code mainly used for deducting and withholding taxes from salary (or other fees). All persons paying deducted or withheld taxes must have a TAN and specify it in their TDS or TCS documents.
Taxpayer Identification Number (TIN) is an 11-digit numeric code mandatory for carrying out transactions that are subject to VAT. TIN is often referred to as a VAT number or sales tax number.
Unique Identification Number (UID) or Aadhaar is a unique 12-digit code mandatory for all residents of India. To obtain it, one needs to file an application and provide biometric and demographic data to the Unique Identification Authority of India (UIDAI).
Udyog Aadhaar is a unique 12-digit identification number issued by the Ministry of Micro, Small & Medium Enterprises (Government of India) to business owners upon registration (sole proprietors can apply on equal terms with legal entities). Udyog Aadhaar is not mandatory, but it can be beneficial (for example, by making one eligible for loans at a lower interest rate, as well as other benefits and subsidies). It is also known as "Aadhaar for business."
Taxes and contributions payable by freelancers
Tax obligations depend on the freelancer's status and/or fulfillment of certain conditions. India has 2 tax statuses for Solar Staff users to choose from:
IMPORTANT! Solar Staff does not have the option to choose a tax status for freelancers based in India, but you can fill in your tax ID in your account.
Section 44AA of the Income Tax Act states that every person involved in law, medicine, architecture, engineering, accounting, technical advice and other activities is required to keep a book of accounts. For activities not specified in Section 44AA, different requirements apply.
Read on for more details.
Individual
Individuals are people engaged in professional activities or otherwise working for themselves. In accordance with the Income Tax Act, any income earned by an individual through the use of their physical or intellectual skills is considered “income from a business or profession”. This status applies for persons with annual income of up to INR 2 million.
Individuals are liable to pay the following taxes and contributions:
Income taxes (taxes on personal income) are paid if annual income from a business activity exceeds the established thresholds. The tax is calculated in INR (Indian Rupees) using progressive tax rates (based on income slabs) in case the old tax regime applies:
Taxable income, INR | Minimum tax, INR | Tax rate, % |
Up to 250,000 |
| 0 |
250,001–500,000 |
| 5 |
500,001–1,000,000 | 12,500 | 20 |
1,000,001 and above | 112,500 | 30 |
Taxpayers can claim documented expenses related to the business activity as deductions (expenses for both personal and professional activities can be deducted only in the amount that was used for the said activity). Total deductions shall not exceed INR 150,000 per year.
Taxpayers may opt for the new personal tax regime (NPTR), which has no deductions or exemptions but provides for lower tax rates:
Taxable income, INR | Minimum tax, INR | Tax rate, % |
Up to 300,000 |
| 0 |
300,001–600,000 |
| 5 |
600,001–900,000 | 15,000 | 10 |
900,001–1,200,000 | 45,000 | 15 |
1,200,001–1,500,000 | 90,000 | 20 |
1,500,001 and above | 150,000 | 30 |
Taxpayers may switch between tax regimes annually or only once depending on the source of income during the year. If the income is fully or partially entrepreneurial or professional, those who selected NPTR stick with it in subsequent years. The only way for them to go back to the old tax regime is to keep receiving income from business or profession.
More info: old vs. new regime based on the income, tax regimes with examples, tax rates in 2022–2024.
In addition, regardless of the regime, a surcharge will apply if the taxpayer's total income exceeds INR 5 million:
Taxable income, INR | Tax rate, % |
Up to 5 million | 0 |
5–10 million | 10 |
10–20 million | 15 |
20 million and up | 37 for the old tax regime 25 for NPTR |
In addition, the taxation system includes a health and education cess in the amount of 4% of income tax and surcharge.
Taxpayers are required to file tax returns using the ITR-3 form (learn more) before July 31 of the year following the reporting year. They also keep accounts in accordance with Section 44AA (learn more). Under certain conditions and circumstances provided for in Section 44AB (learn more), taxpayers are required to have their books of accounts audited and submit ITRs before September 30. It is mandatory to specify your PAN when paying taxes and filing tax returns. Recommendations for filling out and submitting tax returns are available here.
Taxes in the amounts of up to INR 10,000 per year are to be paid before March 15 of the year following the reporting year. You can make tax payments both in person at the bank and online. Taxpayers whose tax liability exceeds INR 10,000 per year are required to make advance tax payments on a quarterly basis:
Period | Tax payable |
No later than June 15 | 15% or more |
No later than September 15 | At least 45% or more |
No later than December 15 | At least 75% or more |
No later than March 15 | 100% |
Liability: Failure to meet the deadline for advance tax payments may lead to penalties under sections 234B and 234C of the Income Tax Act.
Presumptive Taxation Scheme (PTS) is a way of reducing tax by meeting certain requirements. The minimum term of PTS is 5 years. Key differences from other tax regimes:
A simpler ITR-4 form for tax returns (learn more)
An exemption from accounting and auditing
No deductions under sections 30–38
There are 3 options for applying Presumptive Taxation:
Section 44AD sets out a PTS for small businesses with an annual income of INR 20 million or below. Under that arrangement, the tax amounts to 8% of annual turnover (6% if all transactions were made digitally).
Section 44ADA regulates PTS for professional income (not applicable to income from entrepreneurial activity) not exceeding INR 5 million per year. It allows the taxpayer to pay tax on 50% of the actual income (the state will deem the other 50% expenses) using a standard progressive rate.
Section 44AE is on PTS for goods carriage entities operating no more than 10 vehicles. It provides for a monthly tax of INR 7,500 per vehicle.
Alternative Minimum Tax (AMT) is a tax that can be paid in lieu of income tax at progressive rates if your annual income is INR 2 million or above. The AMT rate is 18.5% of the adjusted total income (including bonuses and health and education cess). The rate is 9% if the income is denominated solely in foreign currency. If the income tax for the previous year is lower than AMT, the taxpayer is obliged to pay AMT.
The AMT reporting consists of a Form°29C report signed by a chartered accountant (Institute of Chartered Accountants of India (ICAI)), which confirms that the adjusted total income and AMT were calculated in accordance with the Income Tax Act before July 31 of the year following the reporting year (taxpayer may submit the report along with the income statement digitally).
Goods & Service Tax (GST) is a tax charged on the supply of goods and services all along the ownership chain (similar to VAT and other indirect taxes). Depending on the activity, the GST rate for services is 0%, 5%, 12%, 18% (standard rate), or 28%. If the income is denominated in any currency other than Indian Rupees, the 0% rate applies.
To pay the tax, you need to register with the Goods and Service Tax Network (GSTN) and meet the following requirements:
Annual turnover exceeding INR 2 million (INR 1 million in special category states)
Payment for Online Information and Database Access and Retrieval (OIDAR) services, such as online advertising, cloud services, e-books, entertainment (music, movies, online games), video tutorials, software, and other
Once the GST registration and a GST Identification Number (GSTIN) are obtained, the taxpayer is required to submit monthly and annual reports and pay the tax (online, with the same deadline for paying and reporting), regardless of the annual turnover. Taxpayers have to file 37 GST returns per year (three every month and one for the whole year). This number increases if they are required to submit other forms. Here's the list of the reporting forms in more detail:
GSTR-1 contains information on deductions and outward supplies and is to be filed before the 11th day of the month following the reporting month.
GSTR-2A contains information about incoming payments. Being an input tax credit, it has no filing deadlines.
GSTR-3B is a monthly summary statement that is to be filed before the 20th day of the month following the reporting month.
GSTR-4 is submitted annually before April 30 of the year following the reporting year.
GSTR-5 is a monthly return statement for non-resident taxpayers filed before the 20th day of the month following the reporting month.
GSTR-5A is a mandatory statement for OIDAR service providers (if no business activity took place in the reporting period, a nil return is filed) to be submitted before the 20th day of the month following the reporting month.
GSTR-6 is a monthly form (even if there was no income) to be filed before the 13th day of the month following the reporting month.
GSTR-7 is a monthly form submitted by all taxable persons who are required to deduct TDS (tax deducted at source). GSTR-7 is to be filed before the 10th day of the month following the reporting month.
GSTR-8 is a monthly return for e-commerce operators who are required to deduct TCS (tax collected at source). It is filed before the 10th day of the month following the reporting month.
GSTR-9 is an annual return containing consolidated data on inward and outward supplies to be submitted before March 31 of the year following the reporting year.
GSTR-10 is submitted only upon deregistration as a GST payer. The deadline for its filing is three months from the date of deregistration or the deregistration order (whichever comes later).
GSTR-11 is filed by persons holding a UIN (Unique Identity Number of a foreign diplomatic mission or embassy) who are not required to pay taxes in India.
Sole proprietorship
A sole proprietor (sole proprietorship, एकल स ्वामित्व) is an enterprise consisting of one person in which an individual owns and operates a business. A sole proprietor may operate under a name different from the respective individual's name, and prohibit others from using it by registering a trademark. The sole proprietor's loss/gain is deemed to be the loss/gain of an individual, and the income that of the owner in accordance with the Income Tax Act.
In India, there is no official process for sole proprietorship registration, but in order to carry out activities as a sole proprietor, one needs to do the following (learn more):
Pick a sole proprietorship name (if it is different from the person's full name) and check its availability with the Ministry of Corporate Affairs.
Open a bank account for business (if necessary, special registration may also be required, including by obtaining Udyog Aadhaar).
Obtain licenses and permits (if required).
Register in the GSTN and obtain a GSTIN.
Develop an accounting policy and an accounting and financial management framework.
Sole proprietors pay the same taxes and contributions as individuals.
Additional info
The Reserve Bank of India's (RBI) website for the official INR rate.
Types of companies in India (only sole proprietorship and individual arrangements are possible with Solar Staff).
In Solar Staff, Indian-based freelancers are able to make payments to bank accounts (see here for a full list of methods). Important: The name of the bank account's beneficiary must match the name in the Solar Staff account.
Income received via Solar Staff is declared using certificates and invoices, and in accordance with the offer agreement.
If you have any questions, get in touch via the chat in your Solar Staff account or email us at [email protected].