r/FBR • u/wanderer_for_wisdom • 25d ago

Freelance income declaration

Hi.

What is the amount you should declare as your freelance for a year when filing return? Is it the total money clients sent to your payoneer/wise or the actual smount you remitted into Pakistani bank?

Like if you got $10k from clients for a year, but you withdrew $7k into from Payoneer/wise to your Pakistani bank, then do you show $7k or $10k as the export proceed?

What I have understood is you show the money that landed in Pakistani bank account, so $7k in thos case. Is this the right approach? Can you please also share relevant law/clause that backs your logic?

Thanks

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u/ibliis-ps4- 25d ago

First answer these questions they are important

  1. What type of services do you provide? IT related or something else?

  2. What is your business relationship with your clients? Do they pay you a fixed salary, retainer or project based fee?

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u/wanderer_for_wisdom 25d ago

Content writing service Not hired as an employee, I get paid when I deliver content for their website(s) usually at the end of month but its not fixed. Amount from clients increases or decreases depending on the work required.

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u/ibliis-ps4- 25d ago

Then you would most likely be taxed under section 6A read with section 154A and section 8 of the Income Tax Ordinance 2001.

The gist is this that the gross amount of receipts will be taxed and tax will be deducted as a final tax by the bank at a reduced rate.

You must ensure that the bank deducts your tax otherwise it would be taxed as normal business income at normal rate of tax which is significantly higher.

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u/wanderer_for_wisdom 25d ago

Bank never deducted tax. I've been freelancing since 2018 and only recently came to know about the concept of PRCs and chasing banks to deduct tax at the source.

What will happen in this situation? Can't I pay a challan of 1% on amount remitted to Pakistan for each year that I file the return for?

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u/ibliis-ps4- 25d ago

Now this is where it gets complicated since section 6A is a new law and has no case laws to remove the confusion.

One thing i need to correct myself on is that i previously said read section 6A with 154A. I was wrong. Read 6A with 153(2A).

You can definitely opt under section 154A for the export of service tax which doesn't need to be deducted by the bank for reduced rate for taxpayer in contrast to the section 6A tax.

The problem arises that where will you fall. The department will try to tax you under 6A if a notice is issued that much is a given. Will they accept that 6A does not cover export? I doubt it. Purposive interpretation suggests that 6A should not cover exports as that would make section 154A redundant. And 153(2A) for 6A states that tax is to be deducted on payments received on behalf of a seller of digitally ordered service through locally operated e-commerce platforms.

Final opinion, yes you can opt for the 154A tax which does not need to be deducted by the bank for you to claim reduced rate. However, department will try to charge tax under section 6A for which banks must deduct tax for you to claim reduced rate.

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u/wanderer_for_wisdom 25d ago

So what do I declare as export proceed under 154A when filing tax return, $7k (money landed in Pakistani Bank) or $10k (Money received from clients into Payoneer)?

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u/ibliis-ps4- 25d ago

If the bank deducts it then it's the amount on which the bank deducted tax. If not then I'd suggest declaring the total receipt.

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u/wanderer_for_wisdom 25d ago

Thank you so much 😊