If you are a freelancer, content creator, consultant or small business owner, your tax return may not be as straightforward as that of a salaried employee. Multiple clients, different payment platforms, TDS deductions and business expenses can make filing your ITR a little tricky.
With the August 31 deadline for taxpayers with business or professional income who are not required to undergo a tax audit approaching, it is time to get your records in order.
The deadline applies to several categories, including freelancers and independent professionals, small businesses opting for presumptive taxation, F&O (futures and options) and intraday traders with business income, and salaried individuals earning additional income from freelancing, consulting or active trading. Certain partnership firms, LLPs (Limited Liablity Partnerships), HUFs (Hindu Undivided Family) and associations that are not subject to mandatory audit also fall under this category.
But before you hit the submit button, there are a few things worth checking.
The August 31 deadline is particularly relevant for taxpayers whose income is treated as business or professional income and who are not required to get their accounts audited.
This includes freelancers such as writers, developers, designers and consultants. Content creators earning from YouTube, Instagram, brand collaborations or affiliate income may also fall into this category.
Small business owners using presumptive taxation under Sections 44AD or 44AE, along with eligible professionals opting for Section 44ADA, also need to keep the deadline in mind.
Salaried people are not automatically covered by the July deadline if they also have business or professional income that changes the applicable ITR form and due date.
One of the easiest mistakes for freelancers and creators to make is assuming that small or irregular payments do not need to be reported.
That can be risky.
Nishant Shanker, Tax Controversy & Dispute Resolution at Navraj Global Advisors, said freelancers and creators should report income from all their sources, including YouTube, Instagram, brand collaborations, affiliate income and consulting work.
“The biggest mistake is treating freelance or creator income as casual income and not reporting every source,” Shanker said.
He added that under-reporting income, claiming unsupported expenses, ignoring TDS reflected in AIS or Form 26AS and choosing the wrong ITR can lead to mismatches and queries from the tax department.
“Failure to report taxable income can also result in interest, additional tax and, depending on the facts, penalties,” he said.
For many freelancers and creators, another important decision is choosing the right ITR form.
ITR-4 can be used by eligible taxpayers who meet the conditions for presumptive taxation. ITR-3 is generally required when a taxpayer has business or professional income but does not qualify for, or does not opt for, ITR-4.
The choice becomes particularly important for creators with multiple income streams or more complicated financial affairs.
“Creators with more complex income, multiple activities, foreign income or situations outside the presumptive scheme should carefully evaluate ITR-3,” Shanker said.
Simply choosing a form because it appears easier could create problems later if it does not match the nature of the taxpayer’s income.
Some freelancers and professionals may be able to use the presumptive taxation scheme under Section 44ADA.
Eligible resident individuals and partnership firms engaged in specified professions can opt for the scheme, subject to the applicable gross-receipts limits.
Under the scheme, broadly 50% of eligible gross receipts are treated as taxable professional income, with the remaining portion presumed to cover expenses.
For a freelancer with relatively low actual business expenses, this can make tax compliance simpler.
However, it may not always be the best choice. A freelancer with substantial genuine business expenses may need to compare the presumptive scheme with the option of reporting actual expenses.
“The option can be particularly useful where actual business expenses are relatively low and the compliance simplicity outweighs the benefit of claiming actual expenses,” Shanker said.
Freelancers often work from home and may spend money on laptops, software, internet, professional services and travel. But not every expense can automatically be treated as a business expense.
Depending on the nature of the work, legitimate business or professional expenses may include laptops and other equipment, internet and telephone costs, software subscriptions, office expenses, professional services, work-related travel, research costs and content-production expenses.
The key is to establish a clear connection with the work.
“Expenses should be business-related, reasonable and properly documented. Personal expenses are not permitted,” Shanker said.
That means freelancers should avoid adding personal shopping, family expenses or other unrelated spending simply to reduce taxable income.
For people receiving payments from several clients or platforms, reconciling income before filing is particularly important.
A useful approach is to compare three sets of records: your books or bank statements, TDS certificates and Form 26AS, and AIS/TIS.
“Any difference should be investigated rather than simply ignored,” Shanker said.
This is important because AIS can contain information that may need correction, while every credit appearing in a bank account may not necessarily be taxable income.
“The return should ultimately reflect the taxpayer’s actual taxable income, supported by appropriate records,” he said.
A creator or freelancer may have months with several payments and then go through a period with little or no income. That does not mean records are less important.
Invoices, contracts, platform statements, payment receipts, bank statements, TDS certificates and expense bills should be retained.
Records relating to equipment and software purchases should also be kept where they are relevant to the work.
Having these documents in one place can make it much easier to respond if the Department later asks for clarification about a particular income or expense.
With the deadline approaching, freelancers and creators should not leave everything to the final day.
Before submitting the return, check that all income sources have been included, including smaller or irregular payments. Reconcile the figures with AIS/TIS and Form 26AS, and make sure the expenses and deductions being claimed are supported by records.
Also, check that the correct ITR form has been selected, bank account details are accurate and the final tax liability has been calculated correctly.
And there is one step that is easy to overlook: e-verification.
Filing the return is not the final step. The ITR should be e-verified after submission within the prescribed time.
For a freelancer, tax filing can involve more than simply entering an annual income figure. Multiple clients, platforms, TDS deductions and work-related expenses can all make the return more complicated.
The safest approach is to reconcile the numbers first and file only after checking that the income reported in the ITR matches the underlying records.
As Shanker pointed out, the most important last-minute checks are simple: report all income, reconcile AIS/TIS and Form 26AS, support expenses and deductions, choose the correct ITR and verify the return after filing.
With August 31 approaching, a little time spent checking these details now could save a lot of trouble later.