Are you a freelancer? 5 things to know while filing your ITR
If you're a freelancer in India, tax season can feel like walking a tightrope. Without the comfort of a Form 16 that salaried employees rely on, navigating income, expenses, and deductions might seem like a confusing puzzle.To simplify the process, India Today spoke with CA (Dr) Suresh Surana, who broke down what freelancers should keep in mind while filing their Income Tax Return (ITR), and how they can avoid common mistakes, even without Form 16.advertisementWith a bit of preparation and the right documents in place, Surana says, filing your return can be smooth and stress-free.WHAT SHOULD FREELANCERS KEEP HANDY BEFORE FILING ITR?
Unlike salaried individuals with a single employer, freelancers juggle multiple clients and payment modes. That's why organising your financial paperwork is key.Dr Surana recommends starting with your bank statements for the entire financial year. Highlight every freelance income credit, and make sure it matches your invoices. He said, 'Freelancers should review their bank statements for the entire financial year to track all income credits, particularly those from professional services. Go through them carefully and mark income from freelance work.'Surana added that if your annual gross receipts exceed Rs 25 lakh, maintaining books of accounts is mandatory under the Income Tax Act. Even otherwise, keeping a detailed ledger is a smart move, especially if you haven't opted for presumptive taxation under Section 44ADA.advertisementFreelancers should also collect Form 16 if clients have deducted TDS. 'Cross-check the TDS entries with your Form 26AS and AIS (Annual Information Statement) to ensure proper credit,' he advised.Have a GST registration? Your GST returns will act as proof of earnings—ensure these numbers match with your ITR.If you work with overseas clients, keep clear records of foreign income, including bank advice slips and currency conversion details. 'Retaining bank advice slips and forex conversion details will help substantiate foreign receipts in case of queries,' Surana advised.Planning to claim deductions under Sections 80C or 80D for LIC premiums, PPF deposits, or health insurance? Keep receipts and payment proofs handy.Also, if your total tax liability exceeds Rs 10,000, advance tax kicks in. 'Save all payment challans and check that they reflect in your 26AS,' Surana noted. This can help you avoid unexpected interest under Sections 234B and 234C.WHICH ITR FORM SHOULD YOU USE?As per Surana, most freelancers fall under the 'Profits and Gains from Business or Profession' income head.He said that ITR-3 is ideal for freelancers offering services like consultancy, content writing, tech support, design or writing, if not using presumptive taxation. On the other hand, freelancers eligible for Section 44ADA can use ITR-4 (Sugam), where 50% of gross receipts are considered income, and reporting individual expenses isn't required.CAN FREELANCERS CLAIM WORK-RELATED EXPENSES?advertisementCertainly, but Surana pointed out that this is allowed only when freelancers are not under the presumptive scheme.He explained that freelancers can claim deductions for expenses directly related to their work. These include internet bills, rent for a co-working space, cost of software tools, professional fees, marketing and advertising costs, travel expenses related to business, depreciation on capital assets such as laptops or printers, and other direct costs associated with rendering freelance services.'Just ensure you have proper invoices and payment proofs. Personal expenses mixed with professional ones will not be accepted,' Surana cautioned.'However, if a freelancer opts for the presumptive taxation scheme under Section 44ADA, 50% of gross receipts or, as the case may be, a higher sum as claimed by the assessee are treated as deemed income; separate deduction of expenses is not permitted, as all eligible expenses are deemed to be accounted for within the presumptive income,' he added.DO FREELANCERS NEED TO PAY ADVANCE TAX?Yes, advance tax is compulsory for freelancers whose total tax due for the year, after considering TDS and credits, is Rs 10,000 or more, the tax expert explained.advertisementThose not using the presumptive taxation scheme under Section 44ADA must follow the standard schedule, 15% by 15th June, 45% by September, 75% by December, and the full amount by March, said Surana.'Missing or underpaying advance tax invites interest under Sections 234B and 234C,' warned Surana. The best approach? Estimate your yearly income early and pay timely instalments.FREELANCER TAX ERRORS: WHAT TO WATCH FOR AND AVOIDEven experienced freelancers often slip up while filing ITR. Surana pointed out that not declaring all income, especially from overseas clients or through multiple platforms, is a major mistake. Many also fail to keep proper invoices, receipts, and expense records, which are vital for accurate tax calculations and claiming deductions.Additionally, skipping advance tax payments often leads to interest charges. Some claim personal expenses as business costs, risking disallowance during assessments. Using the wrong ITR form or misclassifying professional income is another frequent mistake.'To avoid these issues, freelancers should maintain clear financial records and segregate business and personal expenses in case of any potential litigation,' said Surana.In other words, freelancing offers flexibility and creative freedom, but when it comes to taxes, structure and accuracy are essential. With proper documentation, early planning, and a solid understanding of tax rules, freelancers can confidently file their ITR and stay on the right side of the law.Must Watch
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