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ITR Filing 2025: Freelancers Must Follow These Tax Rules To Avoid Heavy Penalties

Freelancers in India must understand tax rules like TDS, GST, and ITR filing to avoid penalties and legal trouble.

ITR Filing 2025: Freelancers Must Follow These Tax Rules To Avoid Heavy Penalties
Freelancers and consultants typically file their ITR using either Form ITR-3 or ITR-4.

As freelancing becomes a popular career choice in India, many newcomers often overlook essential tax regulations. Unlike salaried employees, who have their taxes deducted by employers, freelancers are responsible for managing and paying their own taxes. Ignoring these responsibilities can lead to interest, penalties, or even legal notices from the Income Tax Department.

One of the key rules freelancers should understand is TDS (Tax Deducted at Source). When a client pays a freelancer, they often deduct 10% of the payment as TDS and submit it to the government under the freelancer's PAN number. It is important for freelancers to collect Form 16A from clients and verify it with Form 26AS to ensure all deductions are recorded correctly. This allows them to claim the deducted tax when filing their Income Tax Return (ITR).

GST Registration for Freelancers

Freelancers must also be aware of GST (Goods and Services Tax) rules. If their annual income exceeds ₹20 lakh (₹10 lakh in some states), GST registration is mandatory. After registering, freelancers must charge 18% GST on invoices for clients in India. If they are providing services to clients outside India, it qualifies as an export and is exempt from GST. However, GST registration and return filing may still be required.

ITR Filing: Forms and Presumptive Taxation

Freelancers usually need to file ITR using Form ITR-3 or ITR-4. Under Section 44ADA, they can opt for presumptive taxation, which allows them to declare 50% of their income as taxable without maintaining detailed accounts. In addition, they should keep records of professional expenses like internet bills, software subscriptions, or office rent, which help in reducing taxable income.

Consequences of Ignoring Tax Rules

Failing to follow tax or GST rules may result in penalties, interest, or legal action. Missing ITR deadlines or not paying advance tax can attract notices from the tax department. Similarly, not registering under GST, when required, can lead to a hefty fine.

Tax Awareness Builds a Secure Freelancing Career

Although tax rules may appear complicated at first, understanding and following them helps freelancers establish credibility and build a secure career. It also enhances their chances of securing loans, credit cards, or government contracts in the future.

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