Since Paypal is obviously under the Govt. scanner now, I had a few queries on how I pay tax on my Paypal earnings which are above the non-taxable limit for the 1st time, here is my query : I earned Rs. 50000 in India on which TDS is already deducted at 30%, it is professional income from a S/w development company. I earned 4251 USD i.e. 191000 from Paypal this year, this is freelance income from my blogs. I have paid around 150 USD as website charges (domain name etc.) I have paid around Rs.8000 as Internet charges and also bought a new computer Rs.21000 this financial year. My questions are : 1. Is the freelance income supposed to be under income from other sources ? 2. Can I deduct the above expenses ? The receipt of the above are in my father's name except the website purchases which are in my name. 3. Will there be any problems w.r.t. tax if I show all this income and claim refund after savings ? I honestly want to pay any tax I owe India. 4. Also, is tax payable on paypal received income or income I withdraw to my Indian bank account ? Thanks everyone for your time. I am sure this will help a lot of freelancers, people who are already paying taxes are encouraged to reply and quote their examples.
The computer you bought is not an expense, it comes under your asset and you can claim its depriciation every year.
Thanks for your reply. Also is the income my net paypal inflow or only the amount I withdraw to my Indian Bank account ?
All expenses like Electricity, Computer, Internet, Hosting are deductible. If you have office then office building, furniture, including computers are assets and you can count depreciation on them. Only thing is you have to have documents, bills, receipts etc in place.
@Kdish: Your Business Income: Rs.50000 + Rs.191000 (There is nothing callled freelance income as per I.T. law. It's yr business income) Your Business Expenses: website&domain expenses + Paypal Charges + Internet Charges + (60% depreciation on your computer. Invoice required in yr name) Gross Profit: Business Income - Business Expenses If the above is greater then 1,60,000 then you will have to pay tax @10% on the amount greater 160000 and less than 3 lacs. (If you have paid LIC premiums, Mediclaim or any other savings which fall under section 80C, you could get benefit of upto another 1 lac.) All transactions of paypal are to be accounted. Not just withdrawal to indian bank account. For example, if you get $1000 for one project in paypal and you paid $200 for some advertising using paypal and withdrawn to bank remaining $800, then your income is $1000, your expenses is $200, and and foreign conversion charges by paypal are your expenses.
Hmm can you please give some more info. Because my accountant was telling me to just show the Current account statement where I bring in the Paypal dollars. Do I have to file my IT papers and mention dollars in it? Because the exchange rates and all stuff changes every second.
If you are withdrawing all your funds to your current account without spending anything directly from paypal, then it would be ok to show the amount in your bank statement. But if you are spending the money from your paypal account and withdraw partial payment, then that partial income becomes unreported. Let me explain it with an example. Let's say you receive $1000 payment for your services and you spend $100 to buy anything for your personal use, and withdraw $900, so your bank statement will show only $900*INR Conv. amount. It will be under-reporting your income by $100 when preparing your accounts. As we all know, paypal is now being regulated by RBI and it's taking PAN details etc., it is better to report each transaction to be on the safe side. What I normally do is I don't spend any money from my paypal account. I withdraw everythingto my bank. For spending online, I always use credit card.
Hmm I spend maybe 100 dollar per year max from my paypal when someplaces I don't want to give my CC details. Yes I had been paying taxes from last 3 years. So if you count it both ways. The tax amount will remain same. As all money I have spent from paypal were for hosting and domain renewals. Yet I will check it out with Accountant how we can include all the stuff in filings.
Ok, that sounds logical... The only query is Do we need to withdraw all the money to our Bank Account before or on March 31st each year so as to report correct total Income? I mean, we cannot otherwise know the correct figure. For example, if a guy withdraws 1.00 lac till Feb 2010 and has another $1000 in his PP account, what should he report as his income. Because you do not know the conversion rates until you actually withdraw on a particular day. Does that mean he has to forcibily withdraw the balance $1000 (before March 31st) also even though he may not require the money or for that matter keeps it in PP account for a better conversion rate later?. Regards Jeet
how come this freelancing job get you this much amount can u suggest me the site from which u are getting so much money cause im good on photo shop ....
Dude, I think, your PC will also come inside your expenses, since you can show it as business expense.
Previously there was no way your paypal accounts could be scrutinized. But from this year, if there is some substantial amount of transactions, then better need to play within laws. We need to figure out that holding money in paypal for better exchange rate is legal or not. Does it falls under FEMA or not? But unless it is substansial amount, I don't think there will be any problem. But it is always better to make your paypal account nil before 31st march for easy accounting.
Your PC will come under your assets. You can deduct 60% of your PC value as depreciation and show it in expenses.
Do I have to fill ITR 4 ? Also since my other income will be indicated on form 16, does that mean I will have to fill 2 forms ?
Yes have checked with accountant. You can also carry forward the income of this current year to next year if the payment is in some sort of advance fees for some project which might need some expenses later on in the next financial year. But still confirm it first with your accountant. Sometimes it depends on the type of company setup you have. For personal income I don't know if this applies or not.
ITR 4 has options for both business and salary income. So your income from salary as per form 16 and yr business income all can be filed in ITR 4. You can take help from TRP (Tax return preparers) who charge Rs.250/300 for their services. You can find the nearest one in yr area by searching on income tax site.
but we must be having thousands (or at least 200-300 transactions in a year) in PayPal. How are we supposed to account for so many transactions in ITR form (the form's not that long LOL) and it's not practically possible.
I was going through ITR 4, its a jungle of a form, not user friendly at all. Seems like I will have to consult a CA, can anyone tell me how I can deduct Paypal Fee when most Fee paypal charges is in the withdrawals by giving a very bad exchange rate ?