Consultants and freelancers face a slightly different set of rules while filing their income tax returns (ITR) compared to salaried employees. Here are some key points to ensure error-free and compliant filing.
Choosing the right ITR form
Professionals earning consultancy or freelancing income are required to file ITR Form 3. Those opting for the presumptive taxation scheme under Section 44ADA must file ITR Form 4 (Sugam). Under ITR 3, taxpayers must prepare a profit and loss account as well as a balance sheet. Filing an incorrect form can render the return defective or invalid.
ITR 4 cannot be used where income exceeds ₹50 lakh, losses are carried forward, foreign-sourced income is reported, or the taxpayer qualifies as a non-resident. In such cases, ITR 3 must be filed.
For FY25, the deadline for filing ITR is 15 September 2025. If a tax audit under Section 44AB is applicable, the due date extends to 31 October 2025, with the audit report to be filed by 30 September 2025.
Presumptive taxation scheme
Section 44ADA allows notified professionals—such as doctors, lawyers, engineers, accountants, technical consultants, and interior designers—to declare 50% of gross receipts as taxable income. However, those with income above ₹75 lakh per annum cannot avail this benefit. No deductions against business expenses are permitted when opting for this scheme.
Tax regime considerations
Consultants have limited flexibility when switching tax regimes. Once the new regime is chosen, a switch back to the old regime is allowed only once in a lifetime. After reverting, opting for the new regime again is not permitted. From FY24, the new regime has become the default, though taxpayers can opt out of it.
While tax slabs are the same as for salaried employees, freelancers cannot claim the standard deduction of ₹50,000. They may, however, claim deductions under Chapter VI-A (such as 80C, 80D, and 80E), but only under the old tax regime.
Maintaining records and documents
Freelancers should maintain proper records of receipts and payments, bank statements, asset and liability details, capital gains, and expenses. Form 26AS, which captures TDS, must be reconciled with actual income and bank entries. For example, if receipts show ₹10 lakh but Form 26AS reflects ₹8 lakh, the discrepancy must be resolved to avoid rejection of returns and loss of refunds.
Reporting other income sources
Earnings from shares, securities, or virtual digital assets must be accurately disclosed. Non-disclosure or under-reporting could invite scrutiny and penalties.
Beware of Section 69 exposure
According to Gaurav Makhijani, senior tax advisor at Roedl & Partner, even under the presumptive scheme—where detailed books of accounts are not mandatory—freelancers remain exposed to Section 69 (unexplained investments). If investments or expenditures appear disproportionate to declared income and remain unexplained, the tax authorities may treat them as undisclosed income. Such income is taxable at a penal rate of 60% plus surcharge and cess under Section 115BBE, with no deductions or set-offs allowed.
Makhijani further pointed out that disclosures in ITR-4—including high-value transactions reflected in AIS/26AS or assets reported in Schedule AL, where applicable—must align with presumptive income declared. Any mismatch between declared income and reported financial activity could invite additions under Section 69, despite the simplified compliance framework of ITR-4.
Source: Things freelancers should keep in mind while filing I-T returns
