Salaried employee with a side business? Here’s how you should report your income in ITR

There are many cases where salaried employees operate a side business to earn some additional income alongside their regular 9-5 job. While having a second source of income is allowed in most cases, employees need to ensure that this income is properly reported while filing their income tax return.

The deadline by which you need to file your ITR depends on the nature and amount of your income. Meanwhile, the applicable ITR form will also depend on whether you are opting for the presumptive taxation scheme.

How to report income from side business?

If the side hustle is carried out regularly with the intention of earning income, it may qualify as business or professional income and would generally be reported under “Profits and Gains from Business or Profession,” according to Gaurav Makhijani, Managing Partner at MGA.

In such cases, ITR-3 or ITR-4 ( for those opting for presumptive taxation scheme), is applicable. If your accounts do not need to undergo and audit, then you must file your ITR by August 31, 2026 for income earned in FY 2025-26.

For example, a salaried employee works as a software developer and outside office hours, he develops and sells his own software. The income from selling the software would generally be treated as business income, while his salary would continue to be reported separately as salary income.

Can you claim expenses for their side business?

Whether you can claim expenses depends on the type of income you earn. For salary income, an individual cannot deduct their actual employment-related expenses. Instead, they can claim deductions or exemptions specifically permitted under the tax law, such as the standard deduction, and certain exemptions may be available under the old tax regime.

However, in the case of business or professional income, the rule is different. Makhijani explained that those operating a business are generally taxed on their net profit, where business-related expenses are deducted from the overall revenue before arriving at the taxable income figure.

“Therefore, if a person has both a salary and a side business, the income from each source is calculated separately according to the rules applicable to that particular type of income,” the tax expert noted.

Do salaried employees with side hustle need to pay advance tax?

For salaried individuals, employers generally deduct TDS (tax deducted at source) based on the employee’s estimated annual taxable income and the applicable tax regime and slab rates. For business or professional income, the person making the payment may also deduct TDS, where applicable.

“If a doctor works as an employee in a hospital and receives a salary. The hospital deducts TDS from the salary. On weekends, doctors also work as visiting consultants for other hospitals and earn professional fees. The second hospital may deduct TDS at the applicable rate on the professional fees,” he said.

The tax expert also warned that TDS does not necessarily mean that there is no further tax to pay. If, after considering TDS and other tax credits, the person’s net tax liability is ₹10,000 or more for the year, advance tax is payable.

The advance-tax instalments for individuals are:

• 15 June: 15%
• 15 September: 45% cumulatively
• 15 December: 75% cumulatively
• 15 March: 100% cumulatively

If the required advance tax is not paid on time, then interest become payable.

Importance of GST registration

A side hustle can also have GST implications, therefore GST registration become mandatory once the aggregate revenue crosses the prescribed threshold, according to Makhijani.

For services, the generally applicable threshold is ₹20 lakh, Meanwhile, for businesses supplying goods, the threshold can generally be ₹40 lakh.

In addition to this, other requirement such as invoicing and record-keeping requirements, local licences or registrations and audit may also become applicable, the tax expert further noted.