ITR Filing 2025: How tax rules differ for freelancers and salaried individuals

ITR Filing 2025: As the ITR 2025 filing season is approaching, many freelancers and consultants are uncertain about how their income is taxed differently from salaried employees.

The key differences lie not only in the type of ITR form to be used but also in how income is calculated, the deductions that can be claimed, and the deadlines for filing.

White filing ITR, it’s important to note that salaried income is taxed under the head “Salaries”, whereas freelance or consultancy income is taxed under “Profits and Gains of Business or Profession.” This classification determines what deductions you can claim and how you maintain records.

Tax deductions at source (TDS) rules

While salaried individuals often rely on their employer-provided Form 16, freelancers must follow a more complex set of rules.

Under the “Salaries” category, employers deduct taxes at source before paying salaries to the employees. Whereas, freelancers must manage and pay their own taxes.

When clients pay freelancers, they usually deduct 10 per cent TDS and deposit it with the government under the freelancer’s PAN. Freelancers should collect Form 16A from clients and match it with Form 26AS to ensure proper credit of the deducted tax.

Salaried vs Freelancers: Deductions on expenses

Salaried individuals are eligible for a standard deduction of up to ₹50,000 if they are under the old tax regime or ₹75,000 under the new regime without needing any proof.

On the other hand, freelancers cannot claim a standard deduction but can claim actual business-related expenses, which includes:

Freelancers cannot claim deductions for personal expenses. However, they have one more provision which allows freelancers to claim a proportion of rent and utility costs of their households as a business expense only if their home is used for work. This also includes, repair, maintenance, and depreciation costs on work-related assets. One must note that any expense you claim must be genuine, proportionate, and justifiable.

How is Net Taxable Income calculated?

A freelancer’s net taxable income is calculated by deducting eligible business expenses from their total earnings. Other sources of income like rent, interest, dividends, or capital gains are taxed under their respective heads and added to the freelancer’s total income.

Deduction Options for freelancers (Under the Old Tax Regime)

Freelancers, like salaried taxpayers, also has the benefit of deductions under the old tax regime for sections such as:

• 80C: Investments in Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), life insurance, etc.
• 80CCD: National Pension Scheme (NPS) contributions
• 80D – Health insurance premiums
• 80TTA – Interest on savings accounts
• 80GG – Rent deduction (up to ₹5,000/month) if not already receiving House Rent Allowance (HRA)

ITR form for freelancers

Freelancers who do not qualify for presumptive taxation must file ITR-3. For example, as a tutor or educator, presumptive taxation rules might not apply, hence detailed income and expense reporting is compulsory.

The presumptive taxation scheme under section 44AD gives relief to small taxpayers having business income up to Rs. 2 Crores. If the cash receipts during the year falls within 5 per cent of the total revenue, businesses having turnover up to Rs. 3 crore can opt for presumptive taxation.

Tax rates are the same for freelancers and salaried individuals, the key differences lie in income classification, deduction eligibility, and compliance responsibilities.