Navigating the choppy waters of tax law can be tricky business for freelancers, but here are a few tips to help you along.
The freelance industry is booming the world over, as well as in India, and is only expected to grow, given that technology is changing how we live, communicate and work.
This emerging trend, which has the favour of corporates, brings flexibility, but also, all the risks and challenges that come with being an independent contractor. While employees always sign employment contractors,are unlikely to have copyright troubles and have little to do to manage their taxes, none of this holds true for a freelancer, who has their work cut out for them.
Here’s a look at what freelancers must do to ensure low tax liability, avoid copyright troubles and ensure on-time payment.
1. Your Work is Your Own
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Freelance workers tend to be shortchanged for their work often. Clients will often attempt to pass off a freelancers’ work as their own and rob from a freelancer his due by giving him no copyright. However, one must remember that doing so is in fact, illegal.
Any work that you create is your own. You hold the copyright and can decide who can use it and how it can we recreated, unless you sign a contract to the contrary, and surrender all your rights to the client.
More importantly, you can recreate the work for another client, without any objection from the first client, as you own the copyright. This is true so long as you do not sign any agreement stating that the work is exclusively for a particular project, and will not be use in any other work.
In all other cases, if no such agreement is signed, you continue to hold the copyright to your work and can choose to do what you wish with it, in the future.
2. Income Tax Refunds
As a freelancer, any entity you enter into contract with will deduct tax at a flat rate, usually 10%, on all your earnings. They are required to do this by law. And given that freelancers, by definition, cannot know how much they will be earning in the year, there’s really no way out of it.
You, on the other hand, need to know that, as a freelancer, you have a way of getting at least some of this money back. You can do this by claiming expenses on acquiring clients, travelling for work and even showing tax-deductible investments in your tax returns. Hence, although your clients will be deducting the standard tax rate of 10%, you can always claim it back as a tax refund.
3. Insist on a Contract
Many freelancers tend to work without much paperwork. A client will call and ask for a graphic design, a travel piece or a photograph, and you will get working on it. While this may work initially, as you expand, you may face issues such as nonpayment and unnecessary iterations. This means that by not having a contract in place, you’re increasing the risk of not being paid and of doing multiple iterations for no extra pay – not a scenario anyone looks forward to.
Whenever possible, insist that your client sign paperwork that sets the date by which you will be paid and the number of iterations you will work on for no extra pay. Always set a rate of pay for any work beyond these iterations.
Not every client will be willing to sign a contract, but remember that their reluctance to do so can be an indication of things to come.
4. Research Your Clients
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Easier said than done, but doing some research on your clients is necessary before accepting work, particularly given instances of non-payment. This is particularly true when accepting work remotely. Always check directories for their address and phone number, read their reviews on social networks and check their employer profile on sites like Glassdoor.
While it may not be possible to do so at every opportunity, hire yourself out to companies / agencies with a credible record, to ensure you get paid.
To avoid such problems, many freelances are also turning to websites such as freelancer.com, as it takes away the risk of non-payment.
Click here to check your income tax refund status.
This article has been authored by Hrishikesh Datar, Founder & CEO of Vakilsearch.com, India’s largest facilitator of legal services online.
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