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Here are the basic I-T accounting records a freelancer should keep

If you are a freelancer, you enjoy the flexibility that comes with your work culture. However, the Indian Income Tax laws mandate that freelancers also account for their income and expenses in connection with their work. The law requires you to maintain books based on your revenue, income and assets. Let's go a little deeper to understand what records a freelancer needs to maintain and exemption if any that he enjoys.

1. A freelancer into a specified profession

If a freelancer is into certain specified professions prescribed under the law viz. legal, medical, engineering, architectural, accountancy, Company secretary, Technical consultancy, Interior decoration, Authorised representative, Film Artist, and Information technology, he will be required to maintain books of accounts as per Rule 6F if his gross receipts exceed Rs 150,000 in any of the three immediately preceding years. In case he has started freelancing in a particular year and his receipts exceed Rs 150,000 for that year, he is again supposed to maintain accounting records for that year.

These are the accounting records that have been prescribed under Rule 6F:

A) Cash Book: A book to record all the cash receipts and payments which helps you know your cash balance at the end of the day or the month.

 
B) Journal: You have to maintain a log of all your day-to-day transactions. In accounting terms, you have to record all the debits and credits, when you are following mercantile system of accounting. 

C) Ledger: A book where all your entries flow from journal, has details of all the accounts and simplifies the preparation of your financial statements at the end of a year.

D) You have to maintain photocopies of all the bills or receipts if the value is more than Rs 25.

E) Lastly, you have to maintain the original bills or receipts if the value is more than Rs 50.

If you are into the medical professions, make sure you maintain these additional records too:

A) Daily case register with details of patients, fees received, services provided, and date of receipt.

B) Stock details of the medicines and other consumable items on daily basis.

Non-maintenance of books of accounts can attract a penalty of Rs 25,000 .

Though the law does not impose the requirement of maintaining books of accounts on professionals having gross receipts of less than Rs 150,000, it is always prudent to keep a record of your income and expenses.

2. Freelancing in any other profession

You would need to maintain such books of accounts so as to enable an assessing officer to calculate your taxable income as per Income tax laws. However, this mandate would arise only when income, if you are an individual, exceeds Rs 250,000 or gross receipts is more than Rs 2.5 million in any one of the immediately three preceding years. Therefore, maintenance of accounts in any accounting software like Tally etc. would satisfy the requirement of law.

Exemption from maintenance of accounting records

The tax laws provide for a scheme of presumptive taxation to small businesses and professionals where they have to offer a certain percentage of gross receipts as taxable income. Therefore, as a freelancer, if you are opting for this scheme, you can offer 50 per cent of your gross receipts as income, provided you have gross receipts less than Rs 5 million in any financial year. Remember, if you are under this scheme, you will not be required to maintain any books of accounts.

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(Archit Gupta is Founder & CEO ClearTax. Views are his own.)


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