I got an offer to work as a freelancer for a European company. In Europe, it's like you need to set up a small legal entity on your name but is this the same in India? How can I do freelancing in India and also pay my taxes? Is it necessary to start a legal entity in India or can I get the salary in my Indian account directly? How can I pay the taxes if I don't want to start a legal entity? The salary will be in Euros.
In India One can do free lancing without having to start a legal entity [company/firm etc]
You can receive funds directly in your individual account, just open the account with a leading bank. The funds would directly get converted into India Rupees at the prevailing rate. Alternately you can open an Euro Account and get the funds there and decide when to convert.
In the tax filing form, there is a section "Income from Other sources" with a category "Others". You need to report the income there and pay taxes.
Note that taxes have to be paid in advance every quarter, else you will have to pay a penalty of 1% per month and interest at 1% per month.
If the amount is going to be large [in the range of 5 to 10 lacs per annum] please keep a good record of all transactions.
Alternatively hire a good CA who would do your tax also advice some of the deductions you can claim [for example if you purchase a computer to do your freelancing job, you can deduct this from your salary income]. Typically the charges are in the range of Rs 1000 to Rs 5000/- for this kind of job.
Edit: Typical the company may give you a work order stating the quantum of work and the amount. For paying, they may ask you an invoice. Invoice is just a statement of work you have done. At a bare minimum it should have description of work done, amount due [in the currency agreed], Due date, payment to account, reference of work order addressed to company etc. The company may insist a statement that any taxes in India are your responsibility. This can be done in a word document and sent across. Alternatively you can ask the company for a sample invoice to be sent.
It is very important that you keep all the work orders, invoice, payment received date handy [keep it for atleast 3-5 years] so that if there are any questions from tax department you don't have to run around. If the amount you are getting is in the range of Rs 5 to 10 lacs per annum, the tax department normally does not bother you. As the amount increases the chances are your returns may come under scrutiny and hence it is prudent to keep all records in order.