Seeking Advice on Business Account for Freelance Income

[connection01]

Hey everyone,

I've been working as a freelancer for a while now, and my foreign remittance is currently around 50 LPA. Up until now, I've been receiving all my remittances in my personal savings account with IDFC, where I enjoy a flat 7% return on funds exceeding 5 lakhs.

However, I've recently decided to switch to a partnership firm. The challenge I'm facing is that banks don't allow businesses to open savings accounts; only individuals can do so. I'm looking for the best strategy in this situation.

I plan to regularly invest the funds in mutual funds and some in the stock market. Nevertheless, I'll still miss out on some interest benefits for the funds left in my bank account, as I won't be deploying all of it.

I'm aware of sweep-in fixed deposits, but they tend to offer low rates. So, I'm seeking advice on which bank to go with. Currently, I'm considering RazorpayX, which seems to provide some additional benefits compared to traditional bank accounts.

Any insights or recommendations would be greatly appreciated!

Thanks in advance.

 

[onlineramarao]

44ADA is for professionals, gives you the ability to claim at least 50% of your revenue as profit.
44AD is for everyone else, gives you the ability to claim at least 8% of your revenue as profit.

The logic behind that is majority of the revenue of a professioanl is their profit, which is not possible for any other business like Transportation, Retail / Wholesale trader and so on.

So tax is more incase of 44ADA. Good for the country.

 

[_amit_]

@connection01 @GGORDON I'm navigating this situation as well.

For this scenario, let's consider an income of 80 LPA, as information about 44ADA (<75LPA) is widely available, but details are lacking when it's not applicable.

I'm currently a salaried individual and plan to transition to freelancing. While these will be discussed with a CA eventually, understanding the intricacies independently can be empowering.

Some concerns may seem irrelevant or interconnected, but they feel crucial when one lacks awareness. Here are some aspects I'm trying to comprehend.

1. Choosing between self-signing agreements or opening a firm. Considering GST registration is required, I assume a firm is the preferred route?
   • Any thing to take care in the contract. Some clauses for safety?
2. Taxation - 44ADA is straightforward if <75 LPA. But what if >75 LPA? Does one need to file under 44AD or 44AB, as books need to be audited as per my understanding?
3. Expenses - What should be shown under expenses? As a remote engineer, expenses are typically less; how does one navigate that? And most things might come under investment rather expenses.
4. GST Implications - As per my understanding, GST registration should be there even if it's 0 due to the export of services and I will be filing LUT.
5. Inward remittance - I've asked a few, and they said it's usually better to have FIRC with each transaction.
6. Banking - Choosing between savings or current account?
   • Identifying the bank offering the best rates and is tech-friendly with features like eFIRC, etc.
   • IOB and BOB seems to offer better rates, but being PSUs, they might pose issues with certificates and compliance, potentially requiring frequent branch visits.
   • In private, a member is having a positive experience with Axis. Does any other private banks offer such benefits?
7. CA Costs - Average costs incurred by a CA, which might involve the above services, like GST, auditing, etc.
8. Any other details you think would be beneficial for me to understand.

These are broad aspects, and I would appreciate any insights.

 

[connection01]

1. Freelancing can be done as sole proprietorship or a firm whichever suits you better. Both can claim 44ADA benefit as long as you do not cross the threshold limit of 75LPA.
2. 44ADA is for for Professionals like doctors, lawyers, engineers, etc. 44AD is for any other small business like trading, manufacturing etc. If your turnover cross the threashold you won't be eligible for 44ADA/44AD and you need to get your books audited. If you do not cross the limit you do not need to maintain books of accounts as long as your are not filing your income lower than 50% in case of 44ADA and 8% in case of 44AD.
3. 44ADA and 44AD are presumptive taxation so none of the expenses are allowed. It assumes that you have earned atleast 50% (8% in 44AD) of your turnover so the rest is automatically allowed as expense. Though govt is silent about what should you do if you say save 90% of your turnover and actual expenses are only 10%. Technically you can still claim your income as only 50% but most CA will suggest you to either withdraw cash show expense etc just to be on safer side.
4. Yes GST is mandatory even at 0 sales.
5. I receive funds via Stripe / PayPal / Payoneer and they automatically issue me FIRC for each transaction.
6. It depends on many factors.
7. It depends.
8. Get in touch with a CA, meet them in person. Don't try to manage everything yourself. You will save a lot of trouble and money in the long run.

@_amit_

 

[_amit_]

Thank you for your response.

I am in talks with CAs as GST will be involved and probably auditing too, but knowledge from the one experiencing things is far richer. Also that different CAs have different ways of managing stuff. Like one recommended me to setup company and others things, which i would like to avoid.

I am going with the sole proprietorship way and 44ADA threshold will eventually be crossed, thats why I wanted to know what happens when 44ADA is not applicable.
Most CAs have suggested 44AD + 44AB will be used, 3CB- 3CD for auditing i guess. But I dont know what other freelances are filing under (when 44ADA is not applicable)

Banking is a concern as I wanted to understand the easy way navigable, with best rates. I guess I have to find that out eventually. I was hoping to find out transaction cost, like I calculated 2.5% for wise.

Expense is tricky for a remote engineer to navigate, otherwise taxation gets to the same level as salaried which I want to transition away from. Commercial property rent, salaries, cash withdrawal are some i am aware of.

CA costs for whom I have talked is averaging on 40K/year, but I guess it will go up, as no one can tell what happens over time.


I am not able to find any clarity online whether savings account won't be allowed for foreign remittance when GST consulted FIRC is involved. Do you have any idea about it? Like current account is mandatory as FIRC is involved for GST refund.

Please feel free to share any other thoughts you might have.

 

[connection01]

@_amit_ If you setup company you cannot claim 44ADA, it’s only available for Individuals and Partnership firm.
If CA tells you to do xyz ask them why, how will it benefit.

You simply need to choose the way with results in least tax liability and highest ease of business. Making a company is only recommended if you will cross 75LPA. If that’s the case then yes register a company. Or else if you can split your business in two individual units, better do that, for example you provide two types of service in freelancing, one being consultancy and other being SaaS. Split the business as separate units and you can then claim 44ADA on both. That’s how I do it. My SaaS business is under the partnership firm and my other freelance work is booked under my individual PAN.

In case of a company I would have paid flat 25% tax but now I effectively pay 15% Income tax (@30% of 50% of turnover)

CA cost sounds about right, 35k/year to 50k/year. It’s negligible if the CA is taking care of all your tax and financial needs.

 

[connection01]

Thank you for your response.

I am in talks with CAs as GST will be involved and probably auditing too, but knowledge from the one experiencing things is far richer. Also that different CAs have different ways of managing stuff. Like one recommended me to setup company and others things, which i would like to avoid.

I am going with the sole proprietorship way and 44ADA threshold will eventually be crossed, thats why I wanted to know what happens when 44ADA is not applicable.
Most CAs have suggested 44AD + 44AB will be used, 3CB- 3CD for auditing i guess. But I dont know what other freelances are filing under (when 44ADA is not applicable)

Banking is a concern as I wanted to understand the easy way navigable, with best rates. I guess I have to find that out eventually. I was hoping to find out transaction cost, like I calculated 2.5% for wise.

Expense is tricky for a remote engineer to navigate, otherwise taxation gets to the same level as salaried which I want to transition away from. Commercial property rent, salaries, cash withdrawal are some i am aware of.

CA costs for whom I have talked is averaging on 40K/year, but I guess it will go up, as no one can tell what happens over time.


I am not able to find any clarity online whether savings account won't be allowed for foreign remittance when GST consulted FIRC is involved. Do you have any idea about it? Like current account is mandatory as FIRC is involved for GST refund.

Please feel free to share any other thoughts you might have.

For individual PAN you can use Savings account for everything, though most people as well as bank will discourage and tell you to get a current account. Only reason is because banks used to report savings account above 10lakh of deposit but now AIS is filled for everyone. If you are doing your taxes correctly you can use savings account without any issue.

For non-individual you will need a current account, make sure to go with zero balance accounts. Most banks have the zero balance for current accounts as well but they try their best to not give you this option.

I am not sure what GST refund you are talking about. What are you paying GST for?

 

[_amit_]

Yes, company suggestion was because 44ADA was not the way for me.
44ADA is NOT applicable for me as I had mentioned in the first query that threshold will be crossed.
What I was not able to understand is how company was beneficial than sole proprietor. Would learn about it more.

I a still trying to understand the best way to navigate under sole proprietorship, as company setup would incur more CA costs and compliance stuff too. Again, not entirely sure. I am still understanding it.

- About business split, one being on individual PAN and another on a partnership ship, I am not sure how to that works. Will try to understand this.
Considering your case, I assumed that if one is sole proprietor and another under partnership both will contribute to 75+ eventually and thus get out of 44ADA? Not sure how you do this.

- Also, it will be difficult for me, as I do not think that the client will go with two contracts.

- For account, My preference is savings, but CA was suggesting current, and I guess bank would as well.

- My bad, refund is the wrong word. GST + LUT and export of services is 0.
What I meant was as FIRC would be issued, maybe bank might create issue about going with current rather savings as I would share the purpose code. But I guess I am dwelling too much into a non-issue. Will see what bank have to say.

 

[connection01]

In case on sole properitor you will incur 30% tax.
You will have to pay additional surcharge of 10% (10% on 30% slab rate) effectively making your tax rate 35% if you cross 50Lakh of taxable income.
In case of company you will pay lower tax at 25% only, surcharge applies once your taxable income cross 1 crore.

- About business split, one being on individual PAN and another on a partnership ship, I am not sure how to that works. Will try to understand this.
Considering your case, I assumed that if one is sole proprietor and another under partnership both will contribute to 75+ eventually and thus get out of 44ADA? Not sure how you do this.

75LPA limit is per PAN card. My freelance business is completely separate from my SaaS having no connection between them so I am able to bifurcate them. This way I am eligile for 75LPA limit separately on each PAN, even thought I am not on that level yet.

Not sure about the last point on GST LUT, I don't think banks care about account being current or savings.

 

[_amit_]

Surcharge thing is true, however as per my understanding of independent contractor, with 44AD, income is based on profit and expenses too like a business, so it wont be 30% on the gross, otherwise my whole exercise of being a contractor is futile.

I have not thought about company route, but if that can be easy to navigate, I will think about it.

 

[KunalJ]

Helpful folks, do also suggest a good banking account for partnership firm. I have a decent RM with HDFC so biased towards it but wanted to ensure I am not missing much by going with it.

 

[j_s]

Helpful folks, do also suggest a good banking account for partnership firm. I have a decent RM with HDFC so biased towards it but wanted to ensure I am not missing much by going with it.

If you are okay with paying some charges, RazorpayX with ICICI is a breeze.

 

[moneyMaker]

btw you can file GST yourself without CA if you are a proprietorship / Shop / MSME.

 

[_amit_]

Helpful folks, do also suggest a good banking account for partnership firm. I have a decent RM with HDFC so biased towards it but wanted to ensure I am not missing much by going with it.

I'm not sure if you're referring to bank accounts for inward remittance or your overall banking experience.

For inward remittance:
Ease of use:

• Big private banks like Axis, HDFC, and ICICI operate similarly.
• Stick with HDFC if you've had a good experience, but in general, banks are similar unless you find a good apple (RM).
• Communication is challenging with them sometimes. They become more like govt banks over time.
• Conversion rates are not favorable.

For better rates:

• IOB, BoB tend to offer better rates.
• Service can be lacking, and getting eFIRC might not be easy as they are essentially government offices.
• SBI is more challenging with eFIRC. Connect with BM for more details

Payment apps:

• Generally easy to use.
• Ease of Communication.
• Automated eFIRC.
• Some apps assist with invoices.
• Examples include Wise and Payoneer.
• Not sure about Deel whether they provide payment services, but it does help with contracts. Deel do connect with other payment apps.
• Only cons is that they can charge a lot (imo). I calculated 2.5% per transaction for wise. Do not have any data to compare with local transfer with banks.

If not limited to inward remittance:

• Small finance or relatively new banks provide better treatment as they are always looking for high-value customers.
• I have nowadays seen small businesses and freelancers use new banks just as they offer better treatment and services.
• Ex: IDFC.
• You can open account with them and keep managing relations with HDFC for other stuff

Ultimately, it depends on individual preferences. I hope this helps.

 

[_amit_]

TIL from a stranger who mentioned that IDFC is offering him a rate 35 paise less than the market rate, which is quite close to the forex rate offered by IOB, I believe.
It appears that new banks are offering competitive rates or atleast IDFC is with some negotaitions.

I didn't get any details about the negotiation tactics or any other factors involved.

Mentioning here in case someone comes find it useful.

 

[sidsonn]

I am also on a similar boat where I am beginning some freelance work and will be getting paid in USD using Deel. I can see a host of inward remittance methods on Deel, but as I go through more and more threads on TF and Reddit, I get more confused.
This is what I have understood so far, so please lmk if this is correct or not:

1. Open a EEFC account with a bank and a current account with INR currency linked to it (told to me by my HDFC RM)
2. Get the money deposited in this EEFC account in USD, if I do in INR, then I will be liable for 18% GST (Got it from a reddit thread)
3. Get the currency exchanged into INR, and into the linked current account
4. Get FIRC for this transaction from the bank (mandatory for compliance purposes)

That being said, if I send money from Deel to this EEFC account then it will consider it as cross border payment and will charge me as per the screenshot below. I can send it to a Wise account for free of cost, but as per my expected remittance amount, Wise would charge approx 80USD for its fees, eFIRC and GST, but I can get the money in INR directly and Fx rates are pretty good.

Can someone advise which route will be a better bet? And if I go with the EEFC account route, which banks should I speak to regarding this? I already have an Imperia Savings with HDFC and they are offering me 18p above their TT rate for conversion and FIRC every month, but their online TT rates aren't that attractive.

 

[_amit_]

I too am looking for a diff chart that shows how much banks charges. Like if someone send $1000 via bank route, how much is received in hand after all charges are deducted. and same for apps. Maybe you can add to this chart once you receive the payments.

Now to your query:
Apps

If possible, look into Skydo for a while assuming your transaction amount is <= $10,000 for a single transaction.
People have mentioned positive outcomes with skydo, but I have not used it. Maybe mail them with your query just to check.
This will give you a breathing room while you prepare to get this working with Indian banks, while you keep getting it from skydo.

You mentioned deel, so your contract is within deel. Deel does not cater to payments, but do allow integrating with other payment services.

Wise is expensive as per my calculations too.

Banking
For Indian banks, start by talking with IOB. This will give you a good idea as IOB deals with forex a lot. If in Mumbai, there is NRI branch of SBI which is supposed to be quite good.

IOB, BoB gives best rate in the banking area which is around 25p to 30p less than market price.
FIRC from public banks are a pain, so do confirm before going with them.

Private banks give worst forex rates. But, you can always negotiate with banks to give you good rates.
HDFC RM saying 18p less than thier TT Rate is just a start. Just ask them to match the IOB rate or you are going with IOB. I think they should be able to give you (IOB rate - 20p) which is still fine considering private banking and assuming FIRC would not be an issue.
But in this scenario you have to keep check on the rate while receiving the money as they are notorious.

Many say that FIRA is enough, but depends on the complaince and FIRC provides the chain details.
Do ask bank RM in mail that FIRC would not be an issue, as it still gets problematic with private banks sometimes.

IDFC is also one bank you can talk to, as its a new bank, BM can give you IOB competitive rates. I have no prior relationship with IDFC so can not comment on their services.

 

[sidsonn]

I too am looking for a diff chart that shows how much banks charges. Like if someone send $1000 via bank route

I can share this by the end of this month as I'll be getting a smaller amount and due to short notice I will be sending it directly to my savings a/c (at least that's what's planned) and from what I've heard, Deel will show me the approximate amount that will be credited after all sorts of calculations. Once I have received it in my account, I will share the exact number as well to show the accuracy of that calculation.

As for the Skydo route, I read about them in another forum (can't remember where) but I am going to definitely shoot a mail to see what they have to offer. I will also try to speak to my HDFC BM once to see if they can do some sort of a good packaged deal regarding this, otherwise I'll check with IDFC, BoB and IOB as well. Thanks a lot!

 

[_amit_]

I will be sending it directly to my savings a/c

That will provide enough information however I am not sure if you can get FIRC with that?

Just an assumption that money might be converted prior to reaching your account, means that forex will happen before it reaches your bank too and thus bank can not give you FIRC. Again not sure but just a thought and things I have seen happen to others as they were not aware of it too. So please confirm with bank.

 

[sidsonn]

Yes, banks will not provide FIRC for this, but I can see that Deel has a checkbox and they will directly provide the FIRC for this

 

[sidsonn]

Okay so I received the money in my Deel account today and here are my findings so far when compared with Skydo (haven't yet withdrawn the money into my normal INR savings account)

1. For small amounts such as $1000: Transferring directly from Deel seems to be a better option. Deel is charging $15 as exchange fee and converting the rest using a lower Fx rate. But still this is marginally better than Skydo.
   1. Deel amount after conversion: 81,548
   2. Skydo amount after conversion: 81,512
   3. Converted amount as per Google: 83,381
2. When the amount starts getting bigger, this changes in favour of Skydo. For $2000, Deel is charging $27 as exchange fee and Fx rate is still low
   1. Deel amount after conversion: 1,63,346.47
   2. Skydo amount after conversion: 1,64,893.78
   3. Converted amount as per Google: 1,66,763.50

I have attached images below of both for reference and Fx rates