Not every individual desires employment that maintains standard office hours from nine to five daily. Many like to be their own bosses and work as self-employed individuals or freelancers to pursue their interests or spend more time with their families. A self-employed or a freelancer does not get a fixed sum assured or salary by the end of each month and only earns as per the work they complete.
Even though there is no salary, freelancers and self-employed people are still required to pay taxes from their income, as per the Indian Income Tax Act, just like any salaried or business taxpayer.
What is Freelancing and Self Employed as Per Indian Income Tax Rules?
According to the Indian Income Tax, any income a person generates by using their intellectual or manual skills to offer services to other businesses or individuals is considered profit and gains from a business or profession. A freelancer or self-employed person is treated as a profession or a business for taxation purposes.
Professions and people such as software developers, blog consultants, web designers, content writers, tutors, fashion designers, etc., qualify in this category. Since their income comes from multiple sources, it can be complicated to understand how to file ITR.
How to Calculate Income for Freelancers and Self-Employed Income?
The Income Tax Act offers two options to calculate the income of self-employed and freelancers for filing ITR:
- Determine the taxable income using a presumptive method without deducting any expenses.
- Claim all costs and determine the actual profit.
If you choose the second option, you must have proper accounting books for proof. Additionally, a certified official must audit if the income is more than INR 50 lakhs.
Deductible Expenses that Can be Claimed as Deduction
As a freelancer or self-employed person, it is necessary that you know the expenses that you can claim as deductions for your income. This will optimise your financial gains and reduce your taxable income. Here are some key expenses:
1. Property Rent
- For your business, if you have rented a property, it will be deducted from your income.
- It includes office space rent and any property rented for work.
2. Repairs Done
- Any cost incurred for rented property repairs.
- Repairs were done to any owned business property.
- Essential equipment repairs, such as printers or laptops for work purposes.
3. Depreciation
- The cost of capital assets, such as a laptop, can be spread over their useful life through depreciation.
- Annual depreciation can be claimed by following the guidelines laid by the Income Tax Act.
4. Office Expenses
- Day-to-day expenses include printer purchases, office supplies costs, telephone bills, conveyance expenses, and internet bills.
5. Travel Expenses
- Expenses for business travel, whether domestic or international, including transportation or accommodation.
6. Meal, Hospitality, or Entertainment Expenses
- Expenses related to dinners, client meetings, or outings for retaining or obtaining new clients.
7. Local Insurance and Taxes for Business Property
- Any local insurance or tax premium paid for business property.
8. App Purchases or Domain Registration
- Expenses related to app purchasing or domain registration for testing your products.
- Ensure these costs are directly linked to business activities.
Tax Slabs For Freelancers and Self-Employed Individuals (FY 2025-26)
| Income Tax Slabs | Old Regime | Income Tax Slabs | New Regime |
| Up to ₹ 2,50,000 | Nil | Up to ₹ 3,00,000 | Nil |
| ₹ 2,50,001 – ₹ 5,00,000
| 5% | ₹ 3,00,001 – ₹ 7,00,000 | 5% |
| ₹ 5,00,001 – ₹ 10,00,000 | 20% | ₹ 7,00,001 – ₹ 10,00,000 | 10% |
| Above 10,00,001 | 30% | ₹ 10,00,001 – ₹ 12,00,000 | 15% |
| ₹ 12,00,001 – ₹ 15,00,000 | 20% | ||
| Above ₹ 15,00,001 | 30% |
Steps to Filing ITR for Freelancers and Self-Employed Individuals
The following sequence explains how to file ITR:
- Step 1: The income-earning period starts from 1st April to 31st March of each financial year for the calculation process.
- Step 2: The next step demands an evaluation of all deductible costs that can be included in the tax filing.
- Step 3: After logging to the Income Tax e-filing portal, you must select the required form, ITR-3 or ITR-4, and fill out the necessary information. Freelancers are not required to know how to file ITR with form 16 since they never receive this document that employee professionals receive.
Conclusion
Freelancers and other self-employed people must pay income tax as paid by any other standard businesses and people who earn a salary. It may be difficult for you to track income and file ITR as it may come from different sources, unlike salaried people who can learn how to file ITR with Form 16 and file their ITR.
All expenses needed to claim deductions during ITR filing must be updated in accounting books supported by appropriate receipts. You can minimise taxes through the specific exemptions defined under diverse sections of the Indian Income Tax Act and the expenses outlined here.
