Freelancing on the side: how salary plus freelance income is taxed

Fees are business or professional income

Money from clients is taxed as income from business or profession, added to your salary, at your slab rate. Your employer's TDS doesn't cover it (clients may deduct some TDS, which shows in your AIS), and the standard deduction doesn't apply to it.

44ADA: tax on half your fees

If you're a resident in a specified profession (legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, film and similar), you can declare 50% of your gross receipts as income, with no books of account. The other half is treated as covering all your expenses.

• Limit: ₹50 lakh of receipts, or ₹75 lakh if cash receipts are no more than 5%.
• Example: ₹6 lakh of fees means ₹3 lakh of taxable income on top of your salary.

44AD: for a small business

For trading or a small business (not a profession), declare 6% of turnover received digitally and 8% of the rest, up to ₹2 crore of turnover (₹3 crore if cash receipts are no more than 5%).

Which ITR

Salary plus presumptive income under 44ADA or 44AD: ITR-4, if your total income is up to ₹50 lakh and you have nothing that needs ITR-2 or ITR-3. Otherwise ITR-3. ITR-1 won't work.

Advance tax

Your employer's TDS covers only your salary. If the tax on your freelance income is ₹10,000 or more for the year, pay advance tax, or you'll owe interest. See our advance tax guide.

Tax audit

A profession generally needs an audit when receipts are over ₹50 lakh, with a higher limit when almost all receipts are digital. If you declare less than 50% under 44ADA and your income is above the basic exemption limit, you need books and an audit.

GST

A service provider generally needs GST registration once turnover crosses ₹20 lakh in a year (₹10 lakh in some special category states). Once registered, you charge GST on your invoices and can use input tax credit on business purchases.

Regime choice

Once you have business or professional income, you can't switch between regimes every year as freely as an employee can. Choose carefully, and ask us if you're unsure.

Common questions

Two ways to sort this

Do it yourself

1. Keep a record of every client payment, and the TDS shown in your AIS.
2. Work out income under 44ADA (50% of receipts) or with actual expenses.
3. Pay advance tax on the freelance part if the tax is ₹10,000 or more.
4. File ITR-4 (or ITR-3) by 31 July, with salary and professional income.

Let an expert do it

We file salary plus freelance income, handle advance tax and tell you if GST registration is needed.

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