Errors freelancers and gig workers must avoid while filing tax returns

Choose the correct income-tax return (ITR) form, reconcile tax deducted at source (TDS) with Form 26AS and the Annual Information Statement (AIS), and keep records ready before claiming deductions

The rise of the gig economy has changed how millions of Indians earn a living. From freelance writers, designers, consultants and content creators to app-based drivers and delivery partners, a growing workforce now works outside the traditional employer-employee framework. This offers greater flexibility and multiple income streams, but it also brings distinct tax responsibilities. Freelancers and gig workers need to understand key tax rules, from choosing the right income tax return (ITR) form to claiming eligible deductions, to ensure smooth and compliant filing for the financial year (FY) 2025-26.

 

Understanding income classification

 

According to tax experts, the Income-tax Act does not specifically use the terms ‘freelancer’ or ‘gig worker’. Instead, tax treatment depends on the nature of the activity and the manner in which the individual earns income.

 

Tax authorities generally classify earnings as business or professional income when there is continuity of work, the individual actively uses skills or expertise to generate revenue, and assumes a degree of financial risk. “In contrast, income from other sources is a residual category that applies only when a receipt cannot be taxed under any other head of income. It is typically meant for occasional, passive, or isolated receipts that do not arise from a regular business or professional activity,” says Shubham Jain, director, SVAS Business Advisors LLP.

 

Choose the correct ITR form

 

The choice between ITR-3 and ITR-4 is not a matter of preference; it depends on how a freelancer or gig worker computes income.

 

ITR-4 (Sugam) is meant for taxpayers who opt for the presumptive taxation scheme. Under this scheme, a fixed percentage of turnover or gross receipts is treated as taxable income, reducing compliance requirements. However, taxpayers cannot use it if gross receipts exceed Rs. 50 lakh, or if they have capital gains or income from more than one house property.

 

“ITR-3 is for individuals with business or professional income who are not using the presumptive taxation scheme. It is a more detailed return form that accommodates multiple income sources, including business, capital gains, and house property,” says Jain.

 

Who qualifies for presumptive taxation?

 

Eligibility for presumptive taxation depends on the nature of the activity. Section 44ADA applies to specified professionals such as doctors, lawyers, architects and similar practitioners. It allows them to declare 50 per cent of their gross receipts as taxable income, subject to prescribed conditions and a turnover limit of Rs. 75 lakh. “Section 44AD applies to eligible small businesses, including many gig and delivery partners, where income is presumed at 8 per cent of turnover, or 6 per cent for receipts through digital modes, subject to a turnover limit of Rs. 2 crore,” says Jain.

 

The key advantage of the presumptive taxation scheme is reduced compliance rather than lower tax liability. Taxpayers are generally not required to maintain detailed books of account or undergo a tax audit.

 

Ensure there’s no mismatch between Form 26AS and AIS

 

Freelancers should periodically reconcile their invoices and payments received with the TDS reflected in Form 26AS and AIS to ensure that the deducted tax has been correctly deposited.

 

“Taxpayers should promptly flag any mismatch between the TDS actually deducted and the tax credit appearing in Form 26AS through the AIS portal, and follow it up with the client or platform. Addressing discrepancies early can help avoid delays in claiming tax credits while filing the income-tax return,” says Neeraj Agarwala, senior partner, Nangia & Co LLP.

 

Expenses freelancers can claim under ITR-3

 

Freelancers who opt to declare actual profits under ITR-3 can claim expenses incurred wholly and exclusively for business purposes. “These may include office or home-office rent, internet and mobile bills, software subscriptions, depreciation on laptops and other work equipment, professional training and memberships, travel and lodging for client-related work, fees paid to consultants or accountants, and marketing or website maintenance expenses,” says Agarwala.

 

Such deductions can help reduce taxable income, provided freelancers maintain adequate records and supporting documents.

 

Advance tax thresholds and deadlines

 

Advance tax becomes mandatory if the estimated tax liability for the year exceeds Rs. 10,000 after accounting for TDS credits. Freelancers should estimate their annual income, deduct eligible expenses, adjust for TDS already deducted, and pay the balance tax through advance tax instalments.

 

“Failure to pay adequate advance tax can attract interest under Sections 234B and 234C. Since freelance income is often uneven, reviewing earnings and tax liability every quarter can help avoid penalties,” says Agarwala.

 

Switching between the new and old tax regimes

 

Unlike salaried taxpayers, individuals with business or professional income cannot switch between the old and new tax regimes every year.

 

“Once a taxpayer opts out of the default new tax regime and chooses the old tax regime, they get only one opportunity to switch back to the new regime. After re-entering the new tax regime, they generally cannot opt for the old regime again in subsequent years,” says Agarwala.

 

Given this restriction, freelancers and professionals should carefully assess the long-term tax implications before choosing the old tax regime.

 

When to skip presumptive tax

 

The Income-tax Act, 2025 provides a presumptive taxation scheme for eligible small businesses and professionals. It allows them to declare income at a prescribed percentage of turnover or gross receipts without maintaining detailed books of account. However, the scheme may not always be tax-efficient.

 

“Freelancers may benefit from opting for the normal taxation regime if their actual business expenses are significantly higher than the deemed deductions under presumptive taxation, if they have brought-forward losses or unabsorbed depreciation to set off, or if they are in the early stages of business with profits lower than the presumptive rate or are incurring losses,” says Akhil Chandna, partner and global people solutions, Grant Thornton Bharat.

 

When books and audit are required

 

Section 62, which corresponds to Section 44AA of the Income-tax Act, 1961, requires specified professionals, such as legal practitioners, medical professionals and accountants, to maintain books of account if their gross receipts exceed Rs. 1.5 lakh in any of the three preceding financial years.

 

“For other businesses and non-specified professions, books of account must be maintained if income exceeds Rs. 1.2 lakh or total sales, turnover or gross receipts exceed Rs. 10 lakh in any of the three preceding financial years, or are likely to exceed these limits in the case of a newly established business or profession. For individuals and Hindu undivided families (HUFs), these thresholds are enhanced to Rs. 2.5 lakh for income and Rs. 25 lakh for turnover/gross receipts,” says Chandna.

 

A tax audit is generally required for businesses with turnover exceeding Rs. 1 crore, or Rs. 10 crore where cash transactions remain within prescribed limits, and for professionals with gross receipts exceeding Rs. 50 lakh.

 

These requirements may also apply when a taxpayer opts out of the presumptive taxation scheme by declaring income lower than the prescribed presumptive rate while having total income above the basic exemption limit.

 

Pre-filing checklist

 

For gig workers and freelancers, the pre-filing stage is particularly important as they often receive income from multiple clients and platforms. Proper documentation helps them report income accurately and claim eligible deductions. “Key documents to keep ready include client contracts, payment receipts, expense records for rent, internet, software subscriptions and travel, as well as reconciled copies of Form 26AS and the AIS/Taxpayer Information Summary (TIS) to ensure all income and tax credits have been correctly reported,” says Deepashree Shetty, partner, global mobility services, tax and regulatory advisory, BDO India.

 

A disciplined approach to record-keeping helps minimise mismatches, supports deduction claims, and reduces the risk of scrutiny at a later stage.

 

Fixing AIS/TIS mismatches

 

Mismatches in AIS/TIS are fairly common for gig workers, particularly when multiple platforms report the same income or incorrect amounts. Taxpayers can report such discrepancies through the AIS section of the income-tax portal by selecting the relevant entry and submitting feedback, such as “information is incorrect” or “income is duplicated.”

 

“However, submitting AIS feedback does not automatically update the reported income. Taxpayers must ensure that the correct income is disclosed in their ITR based on actual earnings and maintain supporting documentation for any future queries,” says Shetty.

 

Post-filing steps

 

After filing and e-verifying the return, taxpayers should regularly track their ITR status on the income-tax portal. If the tax department issues any notice or query, they should respond on time and support their response with proper documentation. For freelancers and gig workers, diligent record-keeping remains the foundation of smooth tax compliance as tax systems rely increasingly on data.

 

GST and ITR reconciliation: Key checks

 

Why it matters: With greater data sharing between the Income-tax Department and Goods and Services Tax Network (GSTN), mismatches between GST returns and ITR disclosures can trigger automated compliance notices

 

• Reconcile regularly: Match GST turnover, GST returns (GSTR-1/GSTR-3B), books of accounts, and expected ITR receipts every month or quarter

• Report income net of GST: GST collected is a statutory levy and should not be included as income in the ITR

• Track timing differences: Keep records of unbilled or accrued income that may appear in books and ITR but not yet in GST returns

• Align books with GST filings: Ensure turnover in books and GST returns is reconciled, with any differences properly documented and explained

• Maintain supporting records: Preserve reconciliation statements and working papers to substantiate figures in case of automated tax scrutiny or notices

 

(Source: Grant Thornton Bharat)

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(The writer is a Delhi-based independent journalist)