Picture this: you're running a successful export business, orders are flowing in, and everything seems smooth until you realise your invoice management system is no longer compliant.&nbsp;

India's GST framework now mandates e-invoicing for businesses above certain turnover thresholds - and if your annual aggregate turnover exceeds ₹5 crore, you must generate e-invoices for all B2B transactions and exports. Not generating valid e-invoices can lead to non-compliance, penalties, and delayed input credits.&nbsp;

This guide explains how e-invoicing applies to exporters, outlines the necessary steps, and provides guidance on automating the entire process.&nbsp;

E-Invoicing involves uploading your invoice details to a government portal, which provides you with a unique ID number and a QR code to verify the authenticity of your invoice.

You create invoices the same way you always have, using your accounting software or billing system. The difference is that now you need to send the invoice data to the <a href="https://einvoice5.gst.gov.in/index">Invoice Registration Portal (IRP)</a> for verification.&nbsp;

Any GST-registered business with an annual turnover above ₹5 crore must generate e-invoices for B2B transactions. This includes all export transactions, whether you're selling goods or services to customers outside India.

All business-to-business invoices for both goods and services. If you're exporting anything from software to steel, from consulting services to consumer products, electronic invoicing applies.

The primary benefit is that your invoice information is automatically transmitted to the GST portal and e-way bill portal. This means that when you file your monthly GSTR-1 return, most details are filled in automatically, eliminating the need for manual data entry. It saves time once the process runs smoothly.

Does e-Invoicing Apply to Exporters? (2025 Thresholds)

The short answer is yes - most exporters doing decent business volume will need to comply with e-invoicing requirements.

You must generate e-invoices for exports if:

Remember that this threshold applies to your total business turnover, not just export sales. So even if your exports are small, if your domestic plus export sales together exceed ₹5 crore, e-invoicing becomes mandatory for all your B2B transactions, including exports.

What are the Consequences of Skipping e-Invoicing for Exporters?

Skipping e-invoicing creates real problems that can seriously impact your export business:

Getting your export e-invoice format right the first time saves you unnecessary amendment issues later. Here's what every export e-invoice needs to include:

💡Tip: Don't let missing shipping bill details delay your invoicing. You can generate the e-invoice first using the electronic invoice system and update shipping bill information later through the amendment process.&nbsp;

This keeps your cash flow moving while ensuring compliance. Just remember to update those details once you receive shipping documentation to maintain complete records.

Step-by-Step: How to Generate an e-Invoice for Exports

Getting your first export e-invoice up and running feels overwhelming, but it's actually a simple five-step process:

Step 1: Create the invoice in your billing software or ERP

Generate your export invoice as you normally would (make sure to add invoice number), ensuring that you mark the invoice type as "Export" and include all required details, such as foreign buyer information. Most modern accounting software has been updated to handle e-invoices and mandatory fields, but double-check that yours captures shipping bill numbers and export-specific data.

Step 2: Push it to the Invoice Registration Portal (IRP) via direct API integration or manually

Upload your invoice data to an authorized IRP. You can accomplish this through API integration, if your software supports it, or manually via the web portal. The system will validate your invoice details against the GST rate database and check for any errors in real-time.

Within seconds, the IRP sends back your unique Invoice Reference Number and QR code. Add these to your original invoice - this makes it a valid e-invoice under GST law.

Step 4: Share with the client and use for filing GSTR-1

Send the updated invoice with IRN and QR code to your customer. The invoice data automatically flows to your GSTR-1, so monthly filing becomes much easier with pre-populated export details.

Step 5: Use it while applying for export refunds or generating eBRC

When claiming GST refunds or obtaining your Electronic Bank Realization Certificate, please reference your IRN. Banks, tax experts, and authorities use this to verify legitimate export transactions quickly.

💡Pro tip: Ask your accountant or software vendor if your current system is IRP-compliant. Many businesses save time by using integrated e-invoicing platforms that automate steps 2 and 3.

Tools That Simplify e-Invoicing for Exporters

Managing e-invoicing manually gets difficult, especially when you're juggling multiple export orders. Here are a few bulk generation tools to help you out:&nbsp;

<a href="https://gstn.org.in/gsp-ecosystem">GST Suvidha Providers (GSPs)</a> with export invoicing modules

These government-approved providers offer specialized export features beyond basic e-invoicing. They understand export documentation requirements and often include features like automatic shipping bill integration and FEMA compliance checks.

Popular accounting software, such as Tally, Zoho, Busy, and Marg, has built-in e-invoicing capabilities. Once set up, they automatically push invoice data to IRP and retrieve the IRN and QR code without requiring any manual intervention. This works well if you're already using these systems for your accounting.

Custom-built tools for SaaS exporters and MSMEs

Many exporters, particularly in the services sector, require solutions that extend beyond traditional accounting software. These application service providers are specifically designed for digital businesses and address the unique challenges of service exports.

Platforms like Skydo that auto-generate compliant GST invoices

Some fintech platforms combine payment processing with invoicing compliance. Skydo, for instance, creates GST-compliant invoices automatically when you receive international payments, handles <a href="https://www.skydo.com/blog/automated-firc-simplifying-international-payments-compliance">FIRA</a> generation instantly, and provides real-time payment tracking. This approach works particularly well for freelancers and service exporters who want everything integrated - from invoicing to payment receipt to compliance documentation.

Export payments shouldn't be complicated. Skydo streamlines the entire process by automatically generating GST-rate-compliant e-invoices when you receive international payments. You get instant FIRA generation, zero FX margins, and real-time payment tracking - all in one platform.

Instead of juggling separate tools for invoicing, compliance, and payments, Skydo handles everything seamlessly. Perfect for service exporters, freelancers, and MSMEs who want to focus on growing their business rather than wrestling with paperwork. The platform integrates e-invoicing compliance with actual payment processing, allowing you to stay compliant while receiving payments faster and at a lower cost than traditional banking routes.

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TDS on foreign remittance keeps many Indian business owners awake at night.&nbsp; Questions like: Do I need to deduct TDS while paying a foreign vendor? Should I worry if my US client doesn’t deduct TDS while paying me? Keep circling in their head.&nbsp;

If that sounds relatable, this blog will be your single source of truth for all things TDS on foreign payments. We’ll provide detailed and jargon-free answers to tell you exactly when TDS applies, who needs to apply, and how to avoid costly mistakes.

TDS on Foreign Payments: What Does It Actually Mean?

TDS (Tax Deducted at Source) is a system used by the government to collect tax at the point where income is paid. Under Section 195 of the Indian Income Tax Act, if you’re an Indian resident or a non-resident making a payment to a foreign vendor or a Non-Resident, and if that income is taxable in India, you’re required to deduct the TDS before transferring the amount. There are a few exceptions to this rule, like the salary paid to a foreign individual.&nbsp;&nbsp;

But you have to deduct TDS when you pay an annual licensing fee to a software vendor based in the US. For example, your design team uses the Adobe Photoshop premium license to design various assets. Adobe Inc. is a USA-registered company, so TDS will apply to it. If the annual license costs $10,000, you must deduct 10%, i.e. $1,000 as TDS. The purpose of this system is to keep track of cross-border payments and prevent tax evasion.

But the real challenge for export-focused businesses and freelancers is knowing which payments actually require TDS. Do all outgoing payments attract TDS? The answer is no. It depends on multiple facets. Here’s a small table to show you when the TDS will be applicable:

If You’re Receiving Foreign Payments – Does TDS Apply?

TDS is not deducted on incoming payments. When you get paid by a foreign client, they may not deduct tax on the amount. Why?

1. Your income accrues in India:&nbsp;This means you are providing goods or services to foreign clients from India and earning money from it. Therefore, it will be treated as income earned and accrued in India

2. The Indian tax laws do not govern your foreign clients. They are not required to comply with Indian TDS provisions because they operate outside India’s tax jurisdiction.&nbsp;

3. As an Indian resident, you’re responsible for declaring your income and paying tax to the Indian government, not your client.

Keep your documents well-organised and thoroughly check them so that you receive the payment from your foreign client without hiccups. For example, always use the correct purpose code. You can always refer to a<a href="https://www.skydo.com/blog/rbi_purpose_code_for_inward_remittance"> Purpose Code finder</a> if you’re not sure which one applies to your business. Likewise, keep your invoices, GST details, and <a href="https://www.skydo.com/blog/automated-firc-simplifying-international-payments-compliance">Foreign Inward Remittance Advice (FIRA)</a> accessible.&nbsp;

We will cover these documents in more detail in the later part of the blog

TDS Rates on Foreign Payments (2025 Update)

The TDS rate depends on the nature of the payment and whether the Double Taxation Avoidance Agreement (DTAA) applies. We will get to the meaning of DTAA in a bit. 

Before that, let’s take a look at some of the TDS rates for foreign payments to a US vendor. The final applicable TDS rate is the lower of the TDS rate mentioned in the Finance Act and the DTAA.

 If the TDS rate according to the Finance Act is lower, then the final rate is calculated as TDS rate + Surcharge + Cess (0.4% of TDS rate + Surcharge)

The Double Taxation Avoidance Agreement (DTAA) is a treaty India signs with other countries, so you don’t have to pay tax twice on your earnings. At present, India has signed DTAA with 85+ countries. 

Imagine you’re a freelancer working with a US-based client. Under the India-USA tax treaty, you can fill out the W8BEN form and send it to your client. The<a href="https://www.skydo.com/blog/filing-w-8ben-and-w-8ben-e-a-guide-for-indian-freelancers-and-businesses"> W8BEN form </a>is a declaration that you’re a resident of India and not subject to U.S. tax withholding.

While filling out the form, you must also quote the article to take advantage of the DTAA. Freelancers must mention Article 15: Independent Personal Services in the W8BEN form. Indian businesses must quote Article 7: Business Profits in the W8BEN-E form.

How to Reduce or Avoid TDS on Foreign Payments (Legally)

To claim the benefit of DTAA and pay low or no TDS, first check if India has a DTAA with your vendor’s country. After you confirm that, you will need the following documents from the client:

Tax Residency Certificate (TRC): The TRC is an official certificate issued by the local tax authority of your vendor’s country. It proves that your client is a tax resident of the country and is eligible for DTAA benefits. Think of it as the foreign version of the PAN Card.

Form 10F: Your vendor must fill out the Form 10F as a self-declaration after registering themselves on the Income Tax portal. This form is used to confirm the vendor’s basic details like name, address, nationality, and Tax Identification Number (TIN). You can download the Form 10F <a href="https://incometaxindia.gov.in/forms/income-tax%20rules/103120000000007197.pdf">here</a>.

No PE declaration: PE is short for Permanent Establishment. This is another declaration where the vendor confirms that they don’t have a fixed office or a permanent base in India. If they have one, they might not be eligible for the DTAA benefits. You can take a look at the sample No PE declaration <a href="https://www.netapp.com/media/117680-no-pe-declaration-form.pdf">here</a>.

After you know that the vendor has completed the above steps, you can file Form 15CA and 15CB with the help of a Chartered Accountant (CA) to remit the payment legally and support the reduced TDS claim.

Here’s a quick overview of what these forms are:

<a href="https://www.skydo.com/blog/form-15ca-cb">15CA</a>: This form reports that you are making a payment to a non-resident individual or a company

<a href="https://www.skydo.com/blog/form-15ca-cb">15CB</a>: If your payment exceeds <a href="https://www.incometax.gov.in/iec/foportal/help/statutory-forms/popular-form/form15cb-um">Rs. 500,000</a> in a financial year, your CA certifies the payment, like TDS rate and deduction and issues a Tax Determination Certificate&nbsp;

How Exporters &amp; Freelancers Can Stay Compliant

When you’re managing international payments, airtight documentation is necessary. This is especially true in the case of TDS on cross-border payments. To help you stay compliant, we have created a short checklist based on whether you’re receiving an international payment or sending one.&nbsp;

If you’re receiving foreign payments:

There is no TDS. But these are the documents you must keep to have a smooth experience.&nbsp;

Use the correct purpose code: A <a href="https://www.skydo.com/blog/what-is-purpose-code-and-why-is-it-required">purpose code</a> is an alphanumeric code issued by the RBI. This code must be attached to every incoming and outgoing international payment to clarify the intended use of funds and regulate the cross-border flow. For example, <a href="https://www.skydo.com/blog/p0802-purpose-code-guide">P0802</a> is the purpose code used when Indian companies or professionals receive a cross-border payment for software consultancy or implementation services.&nbsp;

Maintain FIRA, eBRC, and IEC records: The Foreign Inward Remittance Advice (FIRA) proves you have received a foreign payment in India. The <a href="https://www.skydo.com/blog/what-is-e-brc">Electronic Bank Realisation Certificate (eBRC) </a>is a digital proof that you have received a payment for the goods or services exported. The<a href="https://www.skydo.com/blog/iec-code-full-form-importance-fees"> Import Export Code (IEC)</a> is a unique 10-digit code issued to every business engaged in cross-border trade. The IEC is needed during customs clearance, for taking export benefits, and making international payments.

File GST Returns Appropriately: Take care while filing your GST return, especially if you provide services to foreign individuals or companies. Under GST, the export of services must fulfil four conditions:&nbsp;

ii) The client must be located outside India

iii) The place of supply of the service must also be outside India

iv) The payment must be in foreign currency

TDS may apply, but you can also claim for DTAA benefits if you have the right documents

Check income chargeability: This must be your first step. Check if the income is chargeable in India. The following examples are not considered income in India:

Pure capital receipts (unless specifically taxed)

Loans and advances (not income until waived)

Check for DTAA: Check if India has a DTAA with the vendor country

Determine the tax rate: If there is a DTAA with the vendor country, compare it with the TDS rate mentioned in the Finance Act. Apply the one that is lower.

File form 15CA/15CB when required: These forms must be filled out before sending the payment to the foreign vendor. In Form 15CA, you declare that you’re making a foreign payment, and in Form 15CB, a CA certifies that the details are accurate.

While there is no TDS on incoming foreign payments, traditional banks can chip away a portion of your hard-earned money. To start with, banks don’t offer the best exchange rates.

They charge a forex markup as high as <a href="https://www.skydo.com/blog/forex-markup-fee-explained">3%</a> on the prevailing exchange rate, ultimately reducing your payout. Moreover, there are inward remittance fees, SWIFT charges,&nbsp; often passed on by the sender to the receiver, and intermediary bank fees eating into your profits.

This is where Skydo steps in as a smarter, quicker, and more cost-effective solution. With Skydo, you can create virtual accounts in key geographies like the US, UK, EU, and Australia right from India. 

These virtual accounts work as local digital addresses, so your clients pay you as if they are making a domestic transfer. This way, they bypass the SWIFT charges.

Skydo also offers live exchange rates with no hidden markups. The fee structure is transparent, so you always know how much will be deducted from your incoming payment.&nbsp;

After you receive the payment, the amount is credited to your bank account within 48 hours.

Sounds interesting? Why don’t you <a href="https://www.skydo.com">sign up</a> for a quick demo and get a first-hand experience?

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Do Indian freelancers and businesses need to pay GST on payments from abroad, or on converting USD to INR?
In most cases, export income is GST-free, but forex conversion charges and related services do attract 18% GST.

In this guide, we’ll break down how GST applies to international payments, currency exchange, and inward remittances, plus the documents you need, and how to stay compliant without overpaying.

GST on International Transactions: Overview

For Indian freelancers and businesses, payments from foreign clients are usually not subject to GST. That’s because most exports of services qualify as zero-rated supplies under GST. Zero-rated means you don’t charge GST to your overseas client, but you can still claim Input Tax Credit (ITC) on the GST paid for your business expenses, like software, equipment, or rent.

To qualify as an export of service, five conditions must be met:

Note that, this blog covers only cross-border service exports,&nbsp; not personal remittances or imports, which are treated differently under GST.

GST on Inward Remittances (Export Service Payments)

If you're an Indian freelancer or business receiving payments from foreign clients for services, you don’t charge GST on those invoices. These are considered zero-rated exports under GST as per <a href="https://taxinformation.cbic.gov.in/content/html/tax_repository/gst/acts/2017_IGST_Act/active/chaptervii/section16_v1.00.html">Section 16 of IGST Act</a>,&nbsp; meaning no GST is applied, but you're still eligible to claim Input Tax Credit. For example, if you build websites and get paid $1,000 from a US client, you simply raise an invoice without GST.

To support this classification, you’ll need proof of foreign inward remittance, such as a <a href="https://www.skydo.com/blog/all-you-need-to-know-about-firc-a-complete-guide">FIRC (Foreign Inward Remittance Certificate)</a> or bank advice. These documents show that the payment was received in foreign currency and help validate your export status during audits.

If you're a registered business, it’s advisable to submit <a href="https://www.skydo.com/blog/all-you-need-to-know-about-lut-for-tech-service-export">a Letter of Undertaking (LUT)</a> to export without paying GST.
If you don’t furnish an LUT, you'll need to pay GST upfront on the export invoice and later claim a refund from the government.

Either way, keep proper documentation to support your zero-rated export claims and stay audit-ready.

GST on Foreign Currency Conversion (Forex Services)

Whenever you convert foreign currency to INR (or vice versa), banks and forex providers charge 18% GST,&nbsp;but only on the service fee charged by your bank or forex dealer. This fee is considered a “value of supply” and is taxed at 18% GST.

But here’s the part many people find confusing: the service value isn’t fixed; it’s calculated using a slab system set by the government.

So even though the GST rate is 18%, in most real-world cases, the effective tax comes out to a very small percentage of the converted amount. This helps ease the burden on exporters and freelancers converting foreign payments.

Also note: This GST only applies to retail customers. Inter-bank forex transactions (say, between banks or authorised dealers) are exempt.

How Much GST Does Skydo Charge on International Payments?

Skydo charges 18% GST on its flat service fee, not on the full amount of your international payment.

For example, if you receive $10,000, Skydo’s fee is $29. The applicable GST would be 18% of $29, which comes to around $5.22.

This makes the GST impact predictable and transparent; you’re only paying tax on the actual service, not on the full remittance amount.

GST on Compliance Services like FIRC &amp; BRC

When you receive foreign payments for services, your bank often issues two important documents:

Banks usually charge a small fee for issuing these certificates, and 18% GST is added to that fee, since it's treated as a domestic service.

In most cases, this GST is either built into the bank’s invoice or handled via the reverse charge mechanism, meaning the foreign payer (your client) is technically liable, but you don’t need to worry about collecting GST from them.

You just pay the fee to your bank, and the GST part is already taken care of.

✅ Bonus: Skydo provides FIRA instantly and for free with every payment, saving you both time and money on compliance.

Managing GST on Foreign Transactions: Best Practices

If you're receiving payments from abroad, a few GST best practices can help you stay compliant and avoid surprises:

For Indian freelancers and businesses, receiving payments from foreign clients is largely GST-free, thanks to zero-rated export rules. The only GST you usually pay is on forex conversion or compliance services like FIRC, and even then, it’s a small cost.

As long as you use authorised channels, maintain proper records, and stay updated on GST rules, you can manage your global payments confidently and compliantly.

Skydo helps simplify this even further, with live forex rates, clear service fees, and instant access to FIRA.

<a href="https://www.skydo.com/">Learn more</a> or sign up to streamline your international payments.

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LUT full form is Letter of Undertaking. An Indian exporter can use a LUT to ship goods and services outside India or Special Economic Zones (SEZs) without paying the Integrated Goods and Services Tax (IGST) upfront which otherwise applies to the export of goods and services.&nbsp;

This blog answers all the questions about LUT including LUT full form, definition, eligibility, application, and renewal process.

Exports fall under the zero-rate supply category meaning they are exempt from Goods and Services Tax (GST). However, for this to work, exporters have to pay IGST upfront and claim a refund later.&nbsp;

This is a time-consuming and complex process. They must fill out multiple forms online and upload supporting documents like export invoices and shipping bills. Additionally, if certain information is missing or there is a mismatch, the claim could be rejected.

LUT is a formal declaration submitted to GST authorities by exporters through which they can export goods and services <a href="https://www.skydo.com/blog/understanding-gstin-requirements-for-export-businesses-in-india?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">without paying IGST.</a> It’s a digital process, quick, and hassle-free, and exporters won't face a liquidity crunch.

To be eligible for availing the benefits of a Letter of Undertaking (LUT), an exporter must meet the following criteria.

According to the CGST Rules of 2017, a registered individual can provide a LUT in the GST RFD 11 form to export goods or services without paying integrated tax as long as they meet all the eligibility requirements.

Till 2020, the LUT filing process was manual. Exporters had to fill out the LUT application form on the business letterhead and submit one copy to the jurisdictional GST commissioner positioned in their principal place of business. Another copy had to be submitted to the customs clearing authority along with other export documents.

The online process is much smoother and exporters can get their LUT by following these exact steps:

Here are step-by-step instructions on how to apply for an LUT.

Step 1: Log in to the <a href="https://services.gst.gov.in/services/login">GST Portal</a>&nbsp;using credentials

Step 2: Navigate to the 'Services' tab and click 'User Services'. From there, you can select 'Furnish Letter of Undertaking(LUT)'.

Step 3: Choose the financial year for which you are applying for the LUT from the 'LUT Applied for Financial Year' drop-down menu. For instance, you can select 2024-25.

Exporters can also upload a Letter of Undertaking prepared manually. Click on "Choose File" to select it from your computer if used it in the previous financial years. The document must be in PDF or JPEG file formats and 2 MB maximum file size.

In the next screen, tick on the self-declaration checkboxes on the GST RFD-11 LUT application form to proceed. Here's what the three points are:

a) To&nbsp; export the goods or services within three months from the date of issue of the export invoice

b) To observe all the rules of the GST Act for the export of goods and services

c) To pay IGST plus interest of 18% per annum from the date of invoice to the date of payment if they do not export

Step 5: Next, you must provide the names, occupations, and addresses of two independent witnesses in the boxes. This information is mandatory.

Step 6:&nbsp;Enter the place of business in the "Place of Filing LUT" textbox and enter the name and place of the authorized signatory. An authorized signatory can be the proprietor of the company, the managing director or the company secretary.

Click on "Save." After the form is saved, click on the "Preview" button to ensure the form is filled correctly.

Step 7:&nbsp;On the same screen, there is an option to sign and file the form using either DSC or EVC.

If they have a registered Digital Signature Certificate (DSC), choose the "SIGN AND FILE WITH DSC" option. Use the DSC of the selected authorized signatory to sign the form. A warning message box will appear, click on "Proceed." The system will automatically generate a unique Application Reference Number (ARN).

The other option to file the form is to use an Electronic Verification Code (EVC). So if they don't have a DSC, they can choose this method to furnish LUT. Click on "SIGN AND FILE WITH EVC," and a One-Time Password (OTP) will be sent to the registered mobile number and email address of the authorized signatory. Use the OTP to sign the form, a warning message appears, and click "Proceed." Next step, the system automatically generates a unique Application Reference Number (ARN).

After submission, a confirmation message appears on the screen with a DOWNLOAD button to save the acknowledgement on their device. The GST Portal also sends the ARN via SMS and email to the registered <a href="https://krispcall.com/mobile-phone-number/?utm_source=skydo.com&amp;utm_medium=referral&amp;utm_campaign=Slack">mobile phone number </a>and email address respectively. You can click on the DOWNLOAD button to download the acknowledgement.

LUT is valid for one financial year meaning if an exporter wants to continue taking advantage of zero-rated supplies under GST, they must renew their LUT annually. If they do not renew LUT, they must pay IGST upfront when you export the next time.

The process to renew LUT is similar to the steps above. Here's a quick walkthrough:

After the authorities verify the application successfully, the Application Reference Number (ARN) will be sent to the authorized signatory's mobile number and email address.

What Documents are Required for LUT Registration and Renewal?

If you, as an exporter are filing LUT for the first time, you must complete the LUT registration first. Here is the list of documents required for registration:

After successfully registering for the LUT, you can fill out the GST RFD-11 form to file LUT.&nbsp;

From the next year, you can renew the LUT by following the same process above. You only have to upload a copy of the previous LUT as an additional step.&nbsp;

Receive Seamless Export Payments with Skydo

With a Letter of Undertaking (LUT), exporters don't have to bear tax payments on exports. This way they save money in an easy manner and can use the funds for other business operations. While LUT helps them save money, Skydo helps them get paid by overseas clients on time. Skydo creates virtual accounts where their clients can transfer money instantly. These accounts are linked to their bank account in India where the money gets credited automatically.

When they use a virtual account to accept payments, they don't have to pay<a href="https://www.skydo.com/blog/swift-money-transfer-ultimate-guide"> SWIFT</a> fees which are levied on international bank transfers. Moreover, they don't have to bear hidden charges as Skydo follows a transparent pricing policy. Skydo is the perfect partner to expand an exporter’s international trade.<a href="https://www.skydo.com/"> Sign up for free</a> and start accepting payments now!

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As a freelancer or professional in India, managing your taxes doesn't have to be complicated. The government has introduced a simpler way through Section 44ADA of the Income Tax Act - the presumptive taxation scheme that lets you pay taxes on just 50% of your gross receipts, regardless of your actual expenses.

No more maintaining detailed books or tracking every expense. Whether you're a doctor, architect, lawyer, or freelance consultant, this scheme could significantly simplify your tax compliance while potentially reducing your tax burden.

In this guide, we'll break down everything you need to know about Section 44ADA - who can use it, the limits, how to file your income tax return, and common mistakes to avoid.&nbsp;

What is Section 44ADA of the Income Tax Act?

<a href="https://incometaxindia.gov.in/Acts/Finance%20Acts/2003/102120000000009718.htm">Section 44ADA</a> is a simplified tax calculation method for professionals and freelancers. Instead of tracking every expense and making complex calculations, these normal provisions assume that half of what you earn is your net profit.

Here's how it works: You earned ₹20 lakhs from your consultancy work this year. Under Section 44ADA, You can declare ₹10 lakhs (50% of your earnings) as your taxable income. The remaining ₹10 lakhs are considered to cover your business expenses - no questions asked, no proof needed.

This straightforward approach saves you from the hassle of maintaining detailed expense records while potentially reducing your tax burden.

Who is eligible for Section 44ADA of the Income Tax Act?&nbsp;

Not everyone can take advantage of Section 44ADA - designed specifically for certain eligible professionals and small business structures. Let's break down who can benefit from this presumptive scheme.

If you're working in any of these fields, you're likely eligible:

For example, if you're a doctor running your clinic as an individual practitioner or in partnership with other doctors, you can opt for Section 44ADA. However, if you've structured your practice as an LLP or a private limited company, you won't be eligible for this scheme.

Remember, just because you're in one of these professions doesn't automatically mean you should opt for Section 44ADA. The decision should depend on your actual expenses and business circumstances. 

What are the limits under 44ADA of the Income Tax Act?&nbsp;

To use Section 44ADA, your professional income must stay within certain limits.&nbsp;

Here's what you need to know about these thresholds:&nbsp;

₹50 Lakhs If you're receiving payments through any means (cash, cheque, or online transfers), you can use Section 44ADA as long as your total professional income doesn't exceed ₹50 lakhs in a financial year.

&nbsp;₹75 Lakhs There's good news if you mostly receive digital payments. You can enjoy a higher limit of ₹75 lakhs if you meet this condition:

Scenario 1: A consultant earning ₹60 lakhs annually:

Scenario 2: A lawyer earning ₹55 lakhs annually:

💡Important: When we say "cash receipts," this includes not just physical cash but also bearer cheques and bank drafts that aren't account payee. To stay safe, always insist on account payee cheques or digital payments from your clients.

Taxable Income under 44ADA of Income Tax Act&nbsp;

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