ITR Filing for Freelancers in India: A Complete Income Tax Guide

Freelancing is quite different from the usual 9-to-5. You get more freedom, flexibility, and the ability to work on your own terms. But when tax season arrives, things are not so different anymore. 

Just like every salaried individual, freelancers also have to wade through the same tax obligations. But because you prefer to work independently, there's no employer automatically deducting taxes from your paycheck. 

From tracking income to managing deadlines, everything’s on you. And while that responsibility can get complex pretty fast, understanding how it all works is the best way to stay ahead. Read on to understand ITR for freelancers and its various nuances. 

It’s important to note that there is no specific distinction for taxable income from freelancing in the ITR rules. According to the Income Tax Act of India, your income as a freelancer is treated as “Profits and Gains from Business or Profession” (PGBP). This is also what earnings from any business or self-employment refer to.

This means that the Income Tax Act makes no distinction between your freelance income and any other business income and regards you as a self-employed person. 

Now, coming to how freelancers are taxed. The same income tax slabs that salaried employees follow apply to you too. You can choose between the old or new tax regime. 

You need to pay income tax if your total income in a financial year is more than the basic exemption limit. The limit is Rs. 2.5 lakh under the old tax regime and Rs. 3 lakh under the new tax regime. 

Under the old tax regime, you get to claim several deductions and exemptions. These usually include business expenses you’ve spent on your work, investments like ELSS or PPF, insurance premiums, home-office costs, and software subscriptions. Basically, anything that genuinely helps you earn.

The new tax regime is more straightforward. Although it has lower tax rates, deductions and exemptions are fewer.

In addition to the above, you also have to pay:

1. Tax Deducted at Source (TDS)

When your clients pay you for your services, they have to deduct TDS at 10% under Section 194J. This is applicable if the payment is more than Rs. 30,000 in a financial year. This is money deducted upfront before you receive your payment.

The good thing is that TDS is only a prepayment of tax. So, when you file your ITR, you can claim credit for this TDS you’ve already paid. It will either be adjusted against your final tax liability, or you’ll get a refund if excess tax was deducted.

2. Advance tax

Advance tax applies when your total tax liability for the year crosses Rs. 10,000 (after accounting for TDS). You have to pay your taxes in installments throughout the year instead of one final amount at the end.

For most freelancers, advance tax is usually paid in four installments: 

• 15% by June 15
• 45% by September 15
• 75% by December 15
• 100% by March 15

Note: When you use presumptive taxation under Section 44ADA, you can pay your entire advance tax liability in a single installment by March 15. There’s no need to make four separate payments.

Section 44ADA applies to freelancers who earn under Rs. 50 lakhs a year. Under this presumptive taxation scheme, you only need to declare 50% of your total receipts as taxable income. 

The government automatically assumes that the other half of your income went toward business expenses. For instance, if you earn Rs. 40 lakhs as a freelance designer, you'd only pay tax on Rs. 20 lakhs under Section 44ADA. 

That's quite a significant tax advantage, especially if your actual expenses are lower than 50%. And the best thing is that there are no receipts needed and no explanations required.

Section 44ADA is meant to benefit specific professions like law, medicine, engineering, accountancy, interior design, and consultancy. Another thing to note is that while the basic limit is ₹50 lakhs in annual gross receipts, this increases to ₹75 lakhs if at least 95% of your receipts come through digital payments.

Here’s what makes this scheme attractive:

• You don't need to maintain books of accounts
• There’s no account audit requirement
• You don’t have to track every expense

But Section 44ADA won’t benefit you if your actual business expenses are more than 50% of your income. While you’ll need to maintain proper books and get them audited, you could claim your actual expenses and potentially pay less tax. 

There are two ITR forms for freelancers. They have to choose any one depending on their income:

1. ITR-3

You should file ITR-3 if you’re reporting your actual freelance income and expenses. This is for freelancers who:

• Want to claim detailed business expenses
• Don’t fall under the presumptive tax scheme
• Have total annual gross receipts higher than the Rs. 50 lakh limit
• Have tenure higher than Rs. 75 lakh if 95% or more payments are digital
• Choose not to claim benefits under Section 44ADA

To file ITR-3, you have to maintain proper books of accounts. Plus, get your accounts audited by a Chartered Accountant if your turnover is more than the prescribed limit. 

2. ITR-4

You can use ITR-4 when you claim benefits under the presumptive taxation scheme, where you don’t have to show detailed expenses. This form is ideal if your freelance gross receipts are up to Rs. 50 lakh or Rs. 75 lakh for digital receipts. And when you don’t want to maintain detailed books, or you prefer an easier filing process.

Here are the documents required for filing ITR for freelancers:  

• Bank statements
• Accounts book
• Invoices/receipts
• Form 16A
• PAN card
• Form 26AS or Annual Information Statement (AIS)
• Aadhaar card
• GST returns
• Evidence of investment to claim exemptions

You can calculate your freelancing income in two different ways. This depends on which taxation method you’ve opted for to calculate your expenses:

1. Presumptive taxation

This is how you calculate your income when you opt for the presumptive taxation scheme:

Let’s assume your total income from freelancing in a year is Rs. 40 lakhs. Then your taxable income will be 50% of your gross receipts, which is Rs. 40 lakhs. 

Taxable income: Rs. 20 lakhs 

The government will automatically assume the remaining Rs. 20 lakhs went toward business expenses. You don't need to calculate or prove actual expenses.

2. Regular taxation

This applies when you don’t choose presumptive taxation, maintain books of accounts, and file ITR-3. You calculate your income by deducting actual business expenses.

Let's say your total income from freelancing is Rs. 40 lakhs, and you have some business expenses like internet, software, rent, travel, etc., of Rs. 25 lakhs.  

Your taxable income = Rs. 40 lakhs – Rs. 25 lakhs = Rs. 15 lakhs

In this case, you have to pay tax on Rs. 15 lakhs instead of Rs. 20 lakhs under presumptive taxation. But you also need to keep detailed records and receipts for all expenses.

As a freelancer, if your aggregate annual turnover crosses Rs. 20 lakhs, which is Rs. 10 lakhs for special category states, GST registration becomes mandatory. The standard GST rate for most freelance services is 18%. 

If you also export your services to foreign clients, those services are zero-rated under GST. This means:

• You don't charge your foreign clients any GST (your invoice stays GST-free)
• You don't pay any GST to the government on those earnings
• But you still need to register for GST (once your annual turnover crosses ₹20 lakhs) and file regular GST returns to show that your income came from exports

GST and income tax are separate categories of taxes. But they do intersect in a few ways:

• If you have registered for GST, you need to submit your GST returns as part of your ITR filing documentation. This helps verify your income declarations.

• Your GST filings, which show your gross receipts, should match the income you're declaring in your ITR. Any major differences can raise red flags with the tax department.

Here’s a step-by-step procedure for filing ITR for freelancers: 

1. Gather all your income details

Collect everything that shows how much you earned during the financial year:

• Invoices
• Bank statements
• Payment receipts
• TDS certificates 

2. Calculate your total freelance income

Add up all the payments you received from clients. If you have other income (salary, interest, rent), include that too.

3. Subtract your business expenses

If you’re not using Section 44ADA, deduct all work-related expenses such as:

• Laptop, phone, internet
• Software tools and subscriptions
• Home-office costs
• Travel for client work

4. Choose the correct ITR form

• ITR-3: If you’re reporting actual income & expenses
• ITR-4: If you’re using the presumptive taxation scheme (Section 44ADA)

5. Log in to the Income Tax portal

• Visit the e-filing portal at https://www.incometax.gov.in 
• Sign in using your PAN and password

6. Select “File Income Tax Return”

Then, choose:

• Assessment Year
• Online filing
• Your ITR form

7. Enter all required details

Fill in your details, such as:

• Personal information
• Income from freelancing
• Business/profession code
• Expenses or presumptive income
• Deductions (if any)
• Bank account details

8. Add Deductions (if applicable)

When you file ITR under the old tax regime, this is where you can reduce your taxable income by claiming tax-saving deductions under Chapter VI-A of the form. These include:

• 80C: PPF, ELSS mutual funds, life insurance, tax-saving FDs, etc.
• 80D: Health insurance premiums for yourself or family
• 80E: Education loan interest
• 80G: Donations to approved charities
• 80CCD(1B): Additional Rs. 50,000 deduction for NPS contributions

9. Verify tax computation and submit the return

Check whether you have tax payable or a refund due. Pay any pending tax (self-assessment tax) before submitting. After reviewing properly, submit your ITR.

10. Complete e-verification

Your ITR filing isn't complete until you verify it. You can verify using:

• Aadhaar OTP (instant)
• Electronic Verification Code (EVC)
• Digital Signature Certificate (DSC)
• Or by physically mailing a signed copy of ITR-V to the Centralized Processing Centre

Foreign income simply refers to the income you earn from your international clients. It also doesn’t have a specific category under the Income Tax Act, but it is taxable and regarded as Profits and Gains of Business or Profession (PGBP).  Before the tax is applied, the income is converted into INR using the exchange rate on the date the payment is received. 

Another detail you need to be mindful of is double taxation. If you've already paid tax abroad, you can claim credit for the same amount under the Double Taxation Avoidance Agreement (DTAA), if it applies to the country. This way, you can avoid double taxation by filing Form 67 along with your ITR.

Just like taxation, getting paid from foreign clients is a significant challenge for Indian freelancers. Settlement delays, high fees, and hidden charges often make cross-border payments more stressful than they should be. 

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• Built-in tools for freelancers, like shareable payment links and invoicing.
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Here are some mistakes you should avoid to make the taxation process hassle-free:

• Choosing the wrong ITR form. Many freelancers pick ITR-1, which is meant for salaried individuals, when they should be using ITR-3 or ITR-4.

• Using the same bank account for both personal and business income. This creates tracking problems. 

• Failing to claim work-related deductible expenses such as laptops, internet bills, software tools, and home-office costs unnecessarily increases your tax liability.

• Missing to pay advance tax in quarterly installments, which results in interest and penalties.

• Not maintaining proper records of invoices, receipts, and expenses. This causes issues if the tax department seeks clarification or verification.

• Not claiming TDS credits, which means losing money that is already paid on your behalf.

Filing ITR for freelancers can get complicated. There's no employer doing it for you, no automatic deductions, and plenty of decisions to make about forms and taxation methods. But once you understand the system, it becomes manageable.

You just need to stay organized throughout the year. Additionally, track your income and expenses, maintain proper documentation, and choose the taxation method that actually benefits you.

And while you streamline your taxes, make sure your international payments are just as smooth. For fast, transparent, and hassle-free overseas transfers, sign up with Xflow now!