ITR filing deadline: Can freelancers declare earnings as business income? Tax experts explain

Due to rapid technological advancements, unconventional service delivery and data sharing, there is a rise in freelancing and the gig economy. Today, more and more professionals are generating income outside the traditional employer-employee set-up.

In these evolving circumstances, one question that often arises during income tax filing (ITR) is whether freelance income and unconventional earnings from such forms of employment can be reported as business income?

According to tax experts, the answer to this question is not straightforward, as it fundamentally depends on the nature of the work arrangement and the taxpayer’s relationship with the client.

What do tax experts say?

According to Mihir Tanna, Associate Director (Direct Tax), S K Patodia & Associates LLP (Chartered Accountants), the classification of income is determined by the actual working relationship.

He says, “If you work as an independent contractor with multiple clients, set your own terms, and bear your own business risks, your income is likely from a business or profession. If there is an employer-employee relationship (fixed working hours, supervision, fixed salary, etc.), it is salary income.”

He adds, “Many eligible freelancers/gig workers, especially those with gross receipts below the specified thresholds of ₹75 lakh for professionals or ₹3 crore for businesses, subject to cash receipt conditions, might not opt for presumptive schemes. This results in an unnecessary burden of maintaining detailed books of accounts and getting them audited. Conversely, some might declare profits lower than the presumptive rate without maintaining books and audit, leading to non-compliance.”

Echoing a similar view, Nishant Shanker, Tax & Investments expert, Navraj Global Advisors, says, “Not every freelancer or gig worker can automatically report their earnings as business income. The correct head of income depends on the nature of the engagement, degree of independence, and the terms of the contract. One of the most common mistakes freelancers make is under-reporting income, overlooking TDS reflected in Form 26AS/AIS, or claiming ineligible expenses. Reconciling all income records, maintaining proper documentation, and selecting the correct ITR form can help avoid notices and ensure accurate tax compliance.”

Implications of using wrong presumptive taxation provisions

Experts also caution against using the wrong presumptive taxation provision. CA Mrinal Mehta, Treasurer, Bombay Chartered Accountants’ Society, explained, “Freelancers and gig workers generally report earnings under ‘profits and gains of business or profession,’ but not always—where an employer-employee relationship exists, it’s salary, and casual one-off receipts fall under ‘income from other sources.’ The biggest mistake is wrongly opting for Section 44AD when they’re professionals covered by 44ADA; correct classification, proper books, and timely advance tax avoid costly notices and interest.”

Therefore, in all such cases, the most appropriate tax treatment depends on the facts of each case, including the contractual arrangement and nature of work. Correct income classification, proper record-keeping, tax record reconciliation, and selection of the appropriate ITR form are essential for ensuring compliance and avoiding penalties.