PayPal and Filing Tax in India For Freelancer

Hi Guys,

I am a freelancer and receive payment via PayPal. I have also hired couple of freelancers and pay them through PayPal as well. This year my income would be around 3.5 lakh but I paid over 1 lakh out of it to freelancers I have hired.

This year my income will come under the tax limits therefore I need someone to please answer some of my questions regarding filing the tax.

1) How to show income. I mean i receive payments via PayPal, should I print the receipt of bank withdrawals from PayPal and show them as my income or something else?.

2) How can I reduce the amount paid to the freelancers from my income. Should I print the receipt of payment made to them via PayPal? I need to know this since from now on all the payment will go directly in the bank and I'll have to link my credit card to PayPal for making payments.

3) Which tax form I will have to file?

4) Can I get some tax relief on Internet charges and fees of my daughter's education?

5) What is the due date to pay tax for Fiscal Year 2010/2011. And does this starts from 1 April to 30 March.

6) Since PayPal will transfer all the amount directly into Bank Account. Is there any threat that Bank will deduct some tax. I have a PAN and and every intention to pay taxes. Should I tell that to bank or provide my PAN Card details so they don't deduct taxes.

Thanks A Lot For the answers.

 

1) How to show income. I mean i receive payments via PayPal, should I print the receipt of bank withdrawals from PayPal and show them as my income or something else?.

yes you must do that

2) How can I reduce the amount paid to the freelancers from my income. Should I print the receipt of payment made to them via PayPal? I need to know this since from now on all the payment will go directly in the bank and I'll have to link my credit card to PayPal for making payments.

yes you must print the receipt

3) Which tax form I will have to file?

in my country is w9, you must be ask the goverment what form you need

4) Can I get some tax relief on Internet charges and fees of my daughter's education?

yes for internet charge
no for daughter's education

5) What is the due date to pay tax for Fiscal Year 2010/2011. And does this starts from 1 April to 30 March.

when you pay tax, all is included there

6) Since PayPal will transfer all the amount directly into Bank Account. Is there any threat that Bank will deduct some tax. I have a PAN and and every intention to pay taxes. Should I tell that to bank or provide my PAN Card details so they don't deduct taxes.

bank never take for tax

 

First of all, i dont recommend filing taxes yourself if you dont know what to do. Seek a professional advice from a best chartered accountant in your area. There are so many things out there and it needs to be carefully done..

1. Paypal is a payment processor and you have to show paypal earnings just like any other income. You have to show paypal transactions as a source of income and paypal credits to your bank account . Go paypal history and download the excel or tab delimited format file and print it for entire year. There you will clearly see paypal credits, balance, paypal charges and you can deduct it accordingly.
2. see (1) and print all the satements. i think salary will come to play if you have a company account. Try to create a company as a long term plan, cheapest should be sole proprietorship and show it as salary for your employees.
3. You have to complete the challans for individuals accordingly dpeending on self-employed or salaried. see this page: https://onlineservices.tin.nsdl.com/etaxnew/tdsnontds.jsp
4. yes, you can show expenses for broadband/phoneline/mobile/petrol etc. if you have life insurance or some investments in mutual funds, it is exempted and you will get benefits.
5. Every year ends by march 31. i used to collect all bank statements from APR 1 of previous year to MARCH 31 and run to my auditor and the last date for individuals is JUL 31. Dont forget PAN is a must for filing taxes.
6. No, paypal money comes with NEFT originating from India. So it is not responsibility of banks and you have to file taxes accordingly.

NOTE: i am not a CA and above is just my personal opinion and i could be wrong. please seek a professional advice from a tax expert.

 

you need to withdraw the amount to your local bank account and see if the Profit amount is over 2,00000 INR you can also use insurance reduction of 1,00000INR.

 

All my PayPal transactions are in USD. How to convert amount of every transaction in last one year in Rupee.

 

Hi Guys,

I was wondering that instead of showing complete 1 year statement of paypal, can I just show bank statement where I have transferred all the funds from paypal. The total amount that I have transferred is my profit. Starting next month PayPal will transfer all the funds in my account and I'll make payment to my writers using Credit Card and later I'll add the credit card statement along with the invoices from my writers as expanses.

Let me know what you guys think of this.

 

I also have some questions:

Should I print the complete PayPal statement on monthly basis or one for payment sent and one for payment received.

There are several tables in the excel file downloaded from the PayPal which I don't require. Can I remove these while printing the documents.

Is it necessary to print "total balance" table in the paypal statement.

Can I add a new table in the statement explaining for what purpose I got the money and why did I sent the money and also in which bank account I transferred the money for better transparency and also due to the fact that I don't have invoices for payment received and small payments sent?

I do have some invoice for payment I have sent to my hired writers although these invoices are very simple and made in Microsoft Office. Will these invoice count?

Is it important to print all the documents or can I just keep them in a CD or Pen drive. I have read somewhere that you don't really need to add any document with ITR 4 Form. Only when IT department suspects that you are hiding something, these documents are required for clearance.

 

Dear Mates,

I believe we need to file return in ITR - 4 in India. But I am confused about the NATURE of work, that is to be written in the form!! Can we write FREELANCE WRITING as the nature ? If not, then what should I write? By the way, though I started as a freelance writer, now I have fixed clients and also employ 8 people.

Please advise.

 

I think when you deposit cheque or bank transfer you can show this income for the income tax purpose

 

they are asking paypal transaction info and currency conversion rates at that time of withdrawal details.

 

I think what makes common sense is that until the money is transferred to your local bank it is not taxable. You don't have to show your online paypal statement. I don't really know what are the rules in India. But Until the money is not transferred to Indian bank the money is still in USA. Why would you pay for income not reached India. Indian experts will know better, just my 2 cents.

 

The money you receive from paypal to your bank will be your source of income

say, In jan you got rs 30,000
feb - 50, 000 and so on

You can now tabulate the money you recieved from paypal to your bank for the whole year.

Now this will be your source of income.

You can now calculate the Annual income. You need to pay only for the earnings above rs 1,60,000

Now you can add your deductions under, 80, 80C, 80 CCC etc.

Then if its still below 3 lakhs then 10% of it is your tax.


Now from march 1 onwards you cant pay your employees from your paypal balance. Now if you want to show the salary sent to your employees then you need to register as a company.. I think this is the sole aim of this new rule.

If you want to avoid that then you should pay tax for all the income you got (including the salaries for your employees)

Thats all

 

That is fine, but what should be the NATURE OF WORK? Will it be CONTENT AND JOURNALISM (as I withdraw money from PayPal under this PURPOSE). Please advise.

 

I also believe so. I will pay taxes only for the amount withdrawn to my bank account.

 

Yes, you should use the same nature of work specified in paypal withdrawal.

 

will paypal transaction page serve as payment proof for my staff or should I send them a challan to sign or ask them to invoice me the amount ?

 

Only if you are a registered firm and the same firm name is there in your paypal business account. If you are an individual then you cant show that you are paying for your employees.

With the new rule you cant pay from your paypal balance. So all the money that you are getting to paypal will also come to your bank, so eventually you will be paying more tax.

You can solve this by registering as a firm or you can also cut tax from your employees (its unofficial though)

 

My question was, for self owned business with trademark license proof, are paypal invoices enough to show payment for employees or should we get a sign on the challan? If yes, can someone show a sample challan here? Also, The Govt. Does have tax free for International Currency, so i guess, if we receive money through wire transfer or cc or else wise, and take a transfer proof from the bank then the govt will definitely get the tax removed, because it's foreign money.

 

Presently tax free is only for wire transfers. But the money that you get from paypal NEFT is taxable, thats the best of my knowledge.

But regarding payment proof for employees, I am not sure the paypal invoice can be used?

Has anybody else used it?

 

Yes definitely, it's on Wire that's free. But do we need an extra Declaration from the Bank to be shown to Income tax dept to benefit from this?
I have local as well as online employees. So what kind of challans or payment proofs should i show? Will the scanned copies work? Also, show me a sample challan please.