A freelancer's first year: mixing salary and freelance income, and what to file

Thousands of salaried employees in India transition to freelancing or independent work each year — often gradually, starting with side projects while still employed. The first tax year of this transition can be confusing: you have salary income (with TDS already deducted by your employer), freelance or professional income (no TDS, and you need to handle advance tax yourself), and a mix of forms and rules. This guide walks through a realistic scenario step by step.

Example scenario: Priya, designer

Priya worked full-time as a graphic designer for a company until September 2025 (FY 2025-26). Her salary from April to September was ₹6 lakh. Her employer deducted TDS of ₹45,000 and issued Form 16. She resigned in October and started freelancing full-time. From October 2025 to March 2026, she earned ₹9 lakh as a freelance designer (gross receipts, no TDS deducted by clients). Total income for FY 2025-26: ₹6L salary + ₹9L freelance = ₹15 lakh.

Step 1: Classify your income

• Salary income: ₹6,00,000 — reported under 'Income from Salary' in the ITR. Priya already received a standard deduction of ₹75,000 (new regime) in her salary computation via Form 16, so net taxable salary is reduced by that amount if not already done by employer; check Form 16 carefully.
• Freelance/professional income: ₹9,00,000 — reported under 'Profits and Gains of Business or Profession' (PGBP). Priya can either maintain books and claim actual expenses, or opt for Section 44ADA (presumptive taxation for professionals). If she chooses 44ADA, deemed profit = 50% of ₹9L = ₹4.5L. If she has high actual expenses (say equipment, software, coworking, travel totalling ₹5L), her real profit would be ₹4L, and opting for 44ADA (₹4.5L) would mean slightly higher tax but zero book-keeping and audit. For this example, assume she opts for 44ADA: profit = ₹4.5L.

Step 2: Compute total taxable income and tax

Total income (new regime assumed):

• Salary: ₹6,00,000 (standard deduction already applied or to be applied: net ~₹5.25L after ₹75k deduction; check Form 16 for exact net taxable salary shown).
• Freelance profit (44ADA): ₹4,50,000.
• Assume Form 16 shows net taxable salary of ₹5,25,000 (₹6L - ₹75k). Total taxable income = ₹5,25,000 + ₹4,50,000 = ₹9,75,000.

Tax under new regime (FY 2025-26 slabs):

1. Up to ₹4,00,000: ₹0
2. ₹4,00,001–₹8,00,000 (next ₹4L): 5% = ₹20,000
3. ₹8,00,001–₹9,75,000 (next ₹1,75,000): 10% = ₹17,500
4. Total tax before cess: ₹37,500
5. Add 4% cess: ₹39,000 (approx.)

Step 3: Adjust for TDS already paid and advance tax

• TDS deducted by employer (per Form 16): ₹45,000.
• Tax due: ₹39,000.
• Since TDS (₹45,000) > tax due (₹39,000), Priya is entitled to a refund of ₹6,000.
• However, note that Priya was required to pay advance tax on her freelance income during the year. For presumptive taxpayers under 44ADA, advance tax can be paid in one shot by 15 March. If she missed that, she may owe small interest under Section 234B/234C, which will be calculated automatically when she files. In practice, if her freelance income started only in October and she was unsure of the rules, a small interest amount may apply, but the refund will adjust against any dues.

Step 4: Which ITR form to file?

Priya has two sources of income: salary and business/profession (PGBP). She must file ITR-3 if she maintains books and declares actual profit. But if she opts for Section 44ADA (presumptive), she can file the simpler ITR-4 (Sugam), which covers salary plus presumptive PGBP. Since she chose 44ADA, she uses ITR-4.

What to include in ITR-4

• Salary details from Form 16 (employer TAN, TDS amount, salary breakup).
• Freelance/professional income under presumptive scheme: gross receipts ₹9L, deemed profit ₹4.5L.
• Standard deduction of ₹75,000 (applied to salary; already reflected in taxable salary from Form 16 if computed there).
• Tax paid: TDS ₹45,000.
• Self-assessment tax or advance tax: if Priya paid any advance tax by 15 March, include that.
• Claim refund of excess TDS.

Step 5: Deadlines and penalties

The due date for filing ITR-4 (for individuals not requiring audit) is 31 July of the assessment year (so 31 July 2026 for FY 2025-26, AY 2026-27). File on time to avoid late fee (₹5,000 or ₹1,000 depending on income and delay). If you miss advance tax instalments, interest is auto-calculated but does not prevent you from filing; it is just added to your tax dues or deducted from your refund.

Common mistakes to avoid

• Not reporting freelance income at all: even if clients did not deduct TDS, you must report it. The Income Tax Department receives data on bank deposits and may notice large unexplained credits.
• Ignoring advance tax: once you have non-TDS income and expect tax over ₹10,000, advance tax is mandatory. Presumptive taxpayers get the 15 March single-instalment benefit, but you still must pay.
• Filing the wrong ITR: salary alone = ITR-1 or ITR-2. Salary + business/profession = ITR-3 or ITR-4 (if presumptive). Using the wrong form can cause processing delays or rejection.
• Forgetting bank account and IFSC on the return: needed for refund credit. Double-check these details.

The first year of mixing salary and freelance income feels complicated, but the process is mechanical: classify income, add it up, apply deductions, compute tax, adjust for TDS, file the right form. Do it once, and the pattern becomes clear.

Key takeaways

• Salary + freelance/professional income → file ITR-4 if you use Section 44ADA (presumptive), or ITR-3 if you maintain books.
• Report salary income from Form 16 and freelance income under PGBP (actual or presumptive).
• If you opt for Section 44ADA, 50% of receipts is deemed profit; if 44AD (business), 8%/6% is deemed profit.
• TDS from salary is credited against total tax; any excess is refunded.
• Pay advance tax on freelance income (by 15 March in one shot if presumptive); missing it attracts interest.
• File by 31 July of the assessment year to avoid late fees.

Official sources

This explainer is based on official and primary sources. Always confirm figures and dates on these before acting:

• Income Tax Department — incometax.gov.in
• Central Board of Direct Taxes (CBDT), Department of Revenue
• Income Tax Act & Rules — incometaxindia.gov.in
• GST Portal — gst.gov.in

Reviewed: October 2026. Tax rules change — verify the current financial year and assessment year before you rely on any figure.

This is general educational information for Indian taxpayers, not personalised tax, legal or financial advice. Union of Taxpayers is an independent platform and not a government body. Consider a qualified professional for your specific situation.