Working as freelancer with two partners. How do I report the income for tax purposes in India?

Question

I am a software engineer working in a IT company. Apart from this, I am also working as a freelancer with a U.S. client. Money comes in USD to my Indian bank account. I have two partners with an equal share for each, and I transfer their amount from my bank account once the money comes to my bank.

So my questions are:

1. How can I show my freelancing income on my income tax return?

2. How will my income tax be calculated as I also transfer the amounts to other partners from my bank account?

Any help would be much appreciated

Answer 1

Assuming you have registered your activities as partnership and receiving this money as Individual, you need to show this under Schedule OS, 1d [other income]. this will be under the ITR-2 [tab CG-OS] XLS tax preparation utility given by Tax Department.

The XLS can be found at https://incometaxindiaefiling.gov.in/portal/individual_huf.do

If the funds you are receiving are large [more than say Rs 500,000] then suggest you incorporate a partnership firm or company, there are quite a few exceptions you can claim lowering you tax outgo.

The fact that you are transferring funds to your partners can be an issue incase you get audited. You would need to have sufficient evidence to show that the money paid was for services rendered directly and not your income. It would be easier if you create a partnership or have the client directly pay to them. Again if the sum is small its fine, as the sum becomes large, it would get noticed by the tax authorities.