Freelancers and consultants need to follow specific guidelines while filing their income tax returns for the Financial Year 2024-25. From selecting the correct ITR form to choosing the appropriate tax regime, it's crucial to stay compliant and avoid penalties.
Freelancers earning income from consultancy services must file ITR Form 3. Those under the presumptive taxation scheme, as per Section 44ADA, can use ITR Form 4. Form 4 is valid only if income does not exceed ₹50,00,000, no foreign income is involved, and the taxpayer is a resident individual. If these criteria are not met, ITR 3 becomes mandatory. Missing this step can lead to rejection or a defective return.
Under Section 44ADA, eligible professionals like doctors, lawyers, and technical consultants can declare 50% of gross receipts as taxable income. This ease comes with limitations such as a cap of ₹75,00,000 and disqualification from claiming business expense deductions. All receipts must be properly recorded, even under the simplified scheme.
Freelancers can select between the new and old tax regimes. The new regime, which is now the default, restricts deductions but offers lower slab rates. Once freelancers opt out, reversal is allowed only once. Notably, the standard deduction of ₹50,000 is not available to freelancers in either regime. However, under the old regime, deductions under Chapter VI-A, including Sections 80C, 80D, and 80E, remain accessible.
Freelancers must meticulously track income, receipts, expenses, and bank details. All figures must match Form 26AS. Any mismatch, such as receipts showing ₹10,00,000 but TDS reflecting ₹8,00,000, should be explained to avoid discrepancies and delayed refunds. All income, including from digital assets or capital gains, must be reported in full.
Even under presumptive taxation, unexplained investments or expenses may fall under Section 69 scrutiny. If the income declared appears insufficient compared to the lifestyle or assets reported in AIS or Schedule AL, the income may be taxed at 60% under Section 115BBE without any deductions. Consistency between declared income and financial activities is essential to avert such action.
High-value transactions reported in the Statement of Financial Transactions (SFT) include large cash deposits or withdrawals of ₹50 lakh or more in current accounts and ₹10 lakh or more in other accounts annually. Credit card payments of ₹1 lakh or above in cash or ₹10 lakh or more through any mode are covered.
Investments in fixed deposits, bonds, debentures, shares, or demat transactions exceeding ₹10 lakh in a year also fall under this. Property transactions worth ₹30 lakh or more, as well as foreign currency expenses or sales exceeding ₹10 lakh in a financial year, are reported too.
Read More: ITR Filing FY2025: Under-reporting High-value Transactions? Here’s What It Could Cost You!
Filing ITR correctly is vital for freelancers to stay compliant and avoid penalties. Choosing the correct form, regime, sharing complete income details, and resolving discrepancies with Form 26AS are essential each year.
Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in securities are subject to market risks. Read all related documents carefully before investing.
Published on: Aug 25, 2025, 4:03 PM IST
Team Angel One
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