Freelancers and professionals filing income-tax returns for FY 2025-26 need to be careful about choosing the correct ITR form, opting for presumptive taxation and reconciling their income and tax deducted at source (TDS) records before the August 31 deadline.
The biggest mistake is assuming that ITR-4 is simply a simpler version of ITR-3 and can be used by anyone earning freelance or professional income. CA Parag Jain, Tax Head at 1 Finance, said taxpayers should treat ITR-4 eligibility as a set of conditions rather than a matter of preference.
1. Choosing ITR-4 simply because it is easier
ITR-4 is not available to every freelancer or professional. According to Jain, taxpayers cannot use ITR-4 if they have capital gains, certain foreign assets or foreign income requiring Schedule FSI or Schedule FA, unlisted equity shares, are a company director, have agricultural income above ₹5,000, have gross receipts above ₹75 lakh, or are non-residents or resident but not ordinarily residents (RNORs).
“One that catches people most often is capital gains,” Jain said.
For example, a freelancer who redeemed mutual fund units during FY 2025-26 and consequently has a capital gain cannot use ITR-4, even if the gain itself is small. Such a taxpayer would need to consider ITR-3, subject to the applicable conditions.
Another mistake is trying to use ITR-4 while simultaneously claiming actual business or professional expenses. The presumptive taxation route and separate deduction of actual expenses are not interchangeable.
2. Assuming every freelancer qualifies for presumptive taxation
Presumptive taxation can simplify compliance, but professionals should first establish whether their activity qualifies.
Jain said the specified professional categories include doctors, lawyers, engineers, architects, chartered accountants, interior designers and technical consultants. Content creators, social media managers and virtual assistants, for example, generally fall outside the specified professional category and may instead be treated under the business provisions, where different presumptive-tax rules apply.
3. Ignoring the ₹50 lakh/ ₹75 lakh receipt limit
Eligible professionals need to check their gross receipts before opting for the presumptive route.
Jain said the threshold is ₹50 lakh, which can rise to ₹75 lakh where at least 95% of receipts are through banking or digital channels, meaning cash receipts do not exceed 5%.
Professionals should therefore calculate their total gross receipts for the year and examine the mode through which they were received before selecting the presumptive scheme.
4. Opting for presumptive taxation despite high actual expenses
Under presumptive taxation, income is calculated at the prescribed percentage of eligible receipts rather than by deducting actual professional expenses individually.
Jain said a freelancer should compare the presumptive income with the income that would result under the regular method.
“If actual expenses sit below 50% of receipts,” the presumptive route may work, he said. But where actual expenses are higher than 50%, regular taxation through ITR-3 can result in lower taxable income and potentially lower tax outgo.
5. Declaring less than the presumptive rate without understanding the consequences
Another important point is the percentage of receipts being declared as income.
Jain said taxpayers intending to use the professional presumptive route should be aware that declaring income below the prescribed presumptive rate can trigger an audit requirement under the applicable provisions.
This can undermine the very compliance simplicity for which a taxpayer opted for presumptive taxation in the first place.
Jain also clarified a point that can cause confusion among freelancers. The five-year lock-in associated with presumptive taxation applies to the business category and not to professionals. A professional can therefore move between presumptive and regular taxation from year to year depending on the numbers.
6. Blindly matching income with AIS or Form 26AS
Freelancers often have multiple clients, which can make TDS and income reconciliation particularly important.
If the income or TDS appearing in the Annual Information Statement (AIS) or Form 26AS does not match the taxpayer’s records, Jain said the taxpayer should not simply change the income reported in the ITR to match the AIS.
Instead, the taxpayer should report income supported by invoices and books and maintain a reconciliation explaining the difference.
According to Jain, common reasons for mismatches include a client deducting TDS against the wrong PAN, reporting gross payments that include reimbursements, timing differences between invoicing and payment, and a deductor failing to file its TDS return.
“If the AIS entry is wrong, use the feedback facility on the portal and submit the correct position,” Jain said.
TDS credits require particular attention. If TDS is missing from Form 26AS, the taxpayer may not be able to claim the credit merely by producing other documentation. The deductor may need to file or revise its TDS return.
7. Assuming filing is complete after clicking submit
Submitting the ITR is not the end of the process.
Jain said taxpayers should complete four checks after filing: e-verify the return within the prescribed 30-day period, ensure the bank account is pre-validated if a refund is expected, monitor the return status and check the final processing intimation.
An unverified return can create serious consequences because verification is necessary to complete the filing process. Jain recommends verifying the return on the same day wherever possible rather than waiting until the deadline approaches.
Taxpayers expecting refunds should also check whether the bank account selected for the refund is pre-validated.
Finally, taxpayers should monitor the return after verification. Once the return is processed, they should compare the tax credit claimed with the credit allowed in the processing intimation. A difference can sometimes be traced to TDS that was not reflected in Form 26AS.
For freelancers, filing before August 31 is therefore not just about meeting the deadline. The bigger task is ensuring that the form, taxation method, income, TDS and supporting records all tell the same story.
Disclaimer: The section references provided by the expert relate to the Income Tax Act, 2025, which is effective from April 1, 2026. Returns for FY 2025-26/AY 2026-27 refer to the corresponding provisions of the outgoing Income-tax Act, 1961.