Earning online? Here's how Indian tutors can save on taxes
What's the story
In the age of the internet, online tutoring has emerged as a lucrative career choice for many Indians, enabling them to share their knowledge with students worldwide.
However, comprehending the taxation aspect of this global income can be a daunting task.
This article demystifies the key clauses and sections of the Income Tax Act pertaining to online tutors in India, facilitating a hassle-free tax filing experience.
PAN registration
Registering for PAN and understanding its importance
Every online tutor making money in India needs a Permanent Account Number (PAN). It's your proof of identity and super important for filing your income tax returns.
Without a PAN, you're looking at a flat 20% withholding tax rate on your earnings. That's way more than what you'd normally pay based on your income slab.
Income slabs
Deciphering income slabs and tax rates
The Indian Income Tax Act stipulates a range of income slabs and corresponding tax rates, revised annually.
For individual taxpayers below 60, income up to ₹250,000 is exempt from tax. Earnings in the range of ₹250,001 to ₹500,000 attract 5% tax. The rates rise for higher income brackets.
Online tutors need to determine their slab to accurately calculate their tax liability.
Saving smartly
Deductions under Section 80C to 80U
Online tutors can lower their taxable income by making investments or expenditures in certain specified instruments under Sections 80C through 80U of the Income Tax Act.
These include life insurance premiums, Public Provident Fund, National Pension System, medical insurance premiums under Section 80D, and education loan interest under Section 80E.
By utilizing these deductions wisely, educators can substantially reduce their tax burden.
Simplifying taxes for professionals
Presumptive taxation scheme under sections 44ADA
For professionals such as online tutors, they can choose the presumptive taxation scheme under Section 44ADA if their total gross receipts are less than ₹50 lakhs in a financial year.
By opting for this scheme, they can declare 50% of their gross receipts as their income, which not only simplifies bookkeeping requirements but also lowers taxable income without the need for detailed expense documentation.
Handling international earnings
Reporting foreign income
Online tutoring can draw students from around the world, generating foreign income for Indian tutors.
However, this income is taxable and must be reported using Form SFT-1.
If India has a Double Taxation Avoidance Agreement with the country from which the income originates, you can claim relief for double taxation.