Income Tax Implications for Freelancers in India

Freelancing has become a phenomenon in India that allows individuals to work professionally and on their own terms across multiple disciplines such as writing, taxes, tech, design, and more. However, along with this freedom comes responsibility and, in this case, the responsibility of tax compliance. In such an environment, income tax can take a different spin for freelancers — especially after the rationale that drove the 2025 Union Budget. In this article, we will cover everything freelancers need to understand from a tax perspective.

Understanding Freelance Income Taxation

Freelancers in India are recognized as self-employed professionals by the Income Tax Act of 1961. Any income from these professionals’ intellectual or manual capacities is considered, “Profits and Gains from Business or Profession”. Unlike salaried employees, freelancers do not receive a Form 16, so freelancers need to ensure that they maintain all invoices, bank statements, and expenses so they can calculate their actual taxable income.

Gross income equals the total of all receipts from freelancing activities. However, this income is reduced after you deduct legitimate business expenses, which is why tax planning is key. And freelancers can only choose the old or new tax regimes whichever one yields better results based on their income and expenses.

Tax Slabs for Freelancers in FY 2025-26

The income tax slab for freelancers in India follows the same progressive pattern as for all other individuals, with different rates applied to other income levels. For FY 2025-26 (AY 2026-27), the Union Budget 2025 has laid out revised slabs under the newly implemented tax regime, which is now the default. Here are the new slabs for individuals below 60 years under the newly implemented tax regime:

• Up to ₹3,00,000: Nil
• ₹3,00,001 to ₹7,00,000: 5%
• ₹7,00,001 to ₹10,00,000: 10%
• ₹10,00,001 to ₹12,00,000: 15%
• ₹12,00,001 to ₹15,00,000: 20%
• Above ₹15,00,000: 30%

For freelancers, if there are large deductions under sections, such as 80C or 80D, they can choose the old regime. But the new regime provides lower tax rates with less exemptions, so less number of deductions. New regime makes more sense for freelancers who do not have a substantial amount of tax-saving investments. Choosing a better regime is to check tax liability and work out liability in both, or seek a tax professional. Also, for more details on comprehensive tax slabs, please refer to the Growthinfy Income Tax Slab Guide for FY 2025-26.

Presumptive Taxation: A Game-Changer for Freelancers

For example, if you have a ₹20 lakh annual income, under this scheme only ₹10 lakh will be considered taxable. Following the ₹75,000 standard deduction (Budget 2025), your taxable income will reduce to ₹9.25 lakh (this means less tax raising more in disposable income). This scheme is awesome for professionals like lawyers, doctors, engineers and consultants.

Deductible Expenses for Freelancers

For freelancers, one significant benefit is the ability to claim business expenses that are deducted from taxable income. These must be wholly and exclusively for business usage and must have supporting documentation, and a receipt. Typical deductible expenses are as follows:

• Office Expenses: Rent of your home office or co-working space, utility bill (electric, water), and office supplies (stationery or printers). 
• Depreciation on Equipment: Items like laptops or cameras can be depreciated rather than expensed. For instance, if a laptop cost ₹60,000, it could be depreciated as 33.33% per annum.
• Travel and Client Meetings: Cost for travel to meet clients, both domestic and international and expenses for dinners with clients and function-related outings.
• Internet and Communication: Monthly phone and internet bills that are used for work.
• Professional Services: Fees paid to accountants, lawyers, or software subscription fees.

If you use an asset for both personal and business purposes (for example, a phone), only the business usage is deductible. It is helpful to maintain complete and accurate records to support your claimed expenses in the event of an audit.

GST for Freelancers: When Does It Apply?

Goods and Service Tax (GST) is another important consideration for freelancers. If your annual turnover exceeds ₹20 lakh (₹10 lakh for North Eastern and hill states), you must register for GST, and GST is to be charged at the standard rate of 18% for most services. However, if you are providing services to international clientele, you can benefit from zero-rated supply under GST by filing a Letter of Undertaking (LUT), allowing you to claim input tax credit while you are not required to charge GST. 

Even if your turnover is below the threshold, you may want to consider registering for GST voluntarily if you do work for GST registered clients, which allows you to claim input tax credits.

Make sure to issue GST-compliant invoices and make payments online if they exceed ₹10,000.

Filing Income Tax Returns (ITR) for Freelancers

Freelancers are required to file their ITR using either ITR-3 or ITR-4 based on their income and the taxation scheme:

• ITR-4: For those who declared presumptive taxation under Section 44ADA. This is the simpler option as there are no detailed expenses to report.
• ITR-3: For freelancers that keep detailed books of accounts, or freelancers with other sources of income (e.g. capital gains, property, etc.).

The due date for filing your return is generally July 31 of the assessment year. Make sure the amounts in your books reconcile to Form 26AS and the Annual Information Statement (AIS), otherwise you may receive notices. If your total tax payable exceeds ₹10,000 in any year, you must pay advance tax quarterly (15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15). If you miss these deadlines, you will be liable to pay a penalty under Sections 234B and 234C.

Tax Deducted at Source (TDS) for Freelancers

Many clients apply TDS at 10% (or 20% if you are not providing your PAN) under Section 194J when they make payment for professional services. If TDS has been deducted by your client on behalf of the Income Tax Department, you will be able to claim that TDS when filing your Income Tax Return (ITR), which will offset your tax liability. Always check Form 26AS to see if TDS has actually been deducted from your payment by the client. If you work with foreign clients as a freelancer, you must work within the parameters of various Double Taxation Avoidance Agreements (DTAA) by submitting a Tax Residency Certificate (TRC) to avoid paying tax in both countries.

Tax-Saving Strategies for Freelancers

Here are the methods you can adopt to decrease your overall tax payments:

• Tax Saving Investments: In the old regime, you can claim deductions up to ₹1.5 lakh under Section 80C (like PPF, ELSS, life insurance premium) and claim ₹25,000 under section 80D toward health insurance. 
• Have a Business Account: For tracking your income and expenses, use a dedicated account, such as the IDFC FIRST Bank Current Account. This will make your tax filing easier.
• Take advantage of DTAA for Foreign Income: You may also file for tax credits in the country where you paid taxes so you are not paying a double tax.
• Hire a CA: A chartered accountant can help you maximize and make deductions as well as, to choose the appropriate tax regime, and ensure you remain compliant with present laws

Professional Tax and Other Obligations

Freelancers may also be responsible for paying professional tax, as the tax applies to the managers and partners in their profession. Some states tax professional tax more than others (for example, it can accumulate to ₹2,500 monthly in Maharashtra). The payment cycle and rates depend on the state you are operating in. You also need to be aware of a tax audit mandatory if your gross receipts exceed ₹1 crore. Being mindful of tax compliance and action is extremely important for helping to eliminate occurrences of debt and criminal charges.

Common Mistakes to Avoid

Freelancers tend to make mistakes that can result in tax notices or penalties: 

• Not Keeping Records: If you fail to keep invoices, receipts or bank statements, you will find the ITR filing quite painful. 
• Not Paying/Forgetting To Pay Advance Tax: If you forget to pay the quarterly advance tax payments, there is no rationale as to why interest penalties shouldn’t be levied. 
• Incorrect GST Compliance:  If you didn’t register for GST, or didn’t file LUT to taking on international clients, you will likely have issues with GST compliance. 
• Inconsistent Income Data: Ensure that your ITR matches the AIS data, and Form 26AS you will be putting yourself at the mercy of a tax audit .

The Income Tax Department has advanced AI technology tracking your income through platforms like Upwork, PayPal and UPI will continue to ensure that transparency is part of your income guarantee. 

Conclusion

In India, the world of freelancing can be daunting when you add in the income implications, including tax slabs, income tax deductions, GST, and filing an ITR (tax return). The income tax slab that applies to freelancers in AY 2025-26 provides flexibility for individuals who plan on proceeding under the new or old tax regime while a presumptive taxation scheme for small- scale freelancers can ease the compliance process. Keeping accurate records, leveraging tax deductions, accessing tax help from professionals, and complying with tax laws will ease the burden of income tax and allow freelancers to focus on developing their freelancing career.