Freelancers vs consultants: How to choose the correct ITR form
Selecting the right Income Tax Return (ITR) form ensures accurate reporting and avoids legal issues—here’s how to pick between freelancing and consulting income in 2025.
Know whether you’re a freelancer or consultant Freelancers usually work from remote locations, for example, writing, graphic design, or coding, and get paid via platforms or directly by clients. Consultants usually offer professional services on a project-by-project basis to companies. The deciding criterion is whether your labour is akin to contractual labour (consulting) or assignment-based personal work (freelancing). It matters as it decides applicable sections, disclosures, and allowable deductions under the Income Tax Act.
2/6
Choose ITR 4 for presumptive income under Section 44ADA Consultants can opt for ITR 4 if their professional receipts are less than ₹75 lakh annually. Presumptive taxable income under Section 44ADA is 50% of turnover and you avoid detailed books of account. This simplifies filings, audit, and computation. Even freelancers receiving consultancy fees but below ₹75 lakh can take advantage of this scheme if they are eligible.
3/6
Use ITR 3 if you maintain full books of accounts If you are a professional consultant or freelancer with income over ₹75 lakh or do not wish to opt for presumptive taxation, then you must use ITR 3. This form is for individuals who earn an income from the profits of their business or profession. You must maintain complete books in ITR 3, furnish financials audited in case turnover exceeds ₹2 crore (Section 44AB threshold), and declare gross receipts, expenses, and depreciation.
4/6
Know when to use ITR 1 or ITR 2 If you are a freelancer getting only salary or capital gains, or your freelance income is insignificant and excluded, you can opt for ITR 1 (Sahaj) or ITR 2. ITR 1 can be used only if your total income is from salary, one house property, interest, or other income of ₹50,000 or less. ITR 2 addresses capital gains and foreign income. Remember that active freelancer or consultant income is not enabled in ITR 1 or ITR 2.
Claim relevant deductions and tax reliefs Freelancers who submit ITR 3 are entitled to deduct 80C (up to ₹1.5 lakh), 80D (health insurance premium), and 80G (donations). Consultants submitting 44ADA still claim 80D and 80G. Do not forget to report TDS deduction, claims for refund, and GST details where relevant. If you're an overseas independent contractor for foreign clients, report forex income, avail Double Tax Avoidance Agreement (DTAA) provisions, and report it as a part of your gross receipts.
6/6
Avoid notifications by proper form filing Choosing an appropriate ITR form minimizes risk of notice and scrutiny. Misleading the tax department on income or selecting the incorrect form may lead to mismatch notices. Ensure that your selected form is suitable for your nature of income and turnover. File before the due date—at least July 31 and extended to September 30 in audit cases—, and keep books and proofs for a minimum of six years. Timely compliance avoids unwarranted scrutiny and protects your tax profile.
