Have A Salary And A Side Income? Here’s How You Can Save Tax Legally

Freelancing alongside a full-time job can mean extra earnings, but it also changes the way you need to approach your tax return. Salary and side-hustle earnings are not necessarily taxed or reported in the same manner.

Take someone earning Rs 8 lakh a year as salary and another Rs 2 lakh from eligible professional work. Under the new tax regime, the salary is reduced by the Rs 75,000 standard deduction, leaving taxable salary of Rs 7.25 lakh.

If the freelance activity qualifies for presumptive taxation under Section 44ADA, 50 per cent of the eligible professional receipts can be treated as income. On Rs 2 lakh of receipts, that would mean presumptive professional income of Rs 1 lakh. Total taxable income would then be Rs 8.25 lakh.

For the assessment year (AY) 2026-27, a resident individual under the new tax regime can claim a rebate under Section 87A if total income does not exceed Rs 12 lakh, subject to conditions. In this illustration, the final tax liability may therefore be nil.

Who Can Use Section 44ADA?

Section 44ADA is not available to every person earning freelance income. It applies to resident individuals and eligible partnership firms carrying on specified professions such as legal, medical, engineering, architecture, accountancy, technical consultancy and interior decoration, along with other notified professions, according to a recent report by Business Standard.

The normal gross-receipts limit is Rs 50 lakh. It can go up to Rs 75 lakh where cash receipts do not exceed five per cent of total gross receipts.

A taxpayer opting for the scheme generally declares at least 50 per cent of eligible gross professional receipts as income. Separate deductions for professional expenses cannot then be claimed from that presumptive income.

Choosing The Right ITR Matters

A common mistake is to continue filing as if salary were the only source of income. Once business or professional income is involved, ITR-1 is generally not the correct form.

Eligible taxpayers using presumptive taxation may be able to file ITR-4, subject to its conditions, including the Rs 50 lakh total-income limit. Those with business or professional income who do not qualify for ITR-4 may have to use ITR-3.

Taxpayers should also check their Annual Information Statement (AIS) before filing. Interest, dividends, securities transactions and other reported receipts can appear there even if they do not show up in Form 16.

Do Not Ignore Advance Tax

Freelance receipts may not always have enough tax deducted at source. If the total tax payable after considering Tax Deducted at Source (TDS) crosses the prescribed threshold, advance-tax obligations can arise.

A side hustle may add to your income, but the entire amount you receive may not necessarily be taxable. But the nature of the income, available tax provisions, and the return form all need to be matched correctly.

FAQs

1. Can salaried employees use Section 44ADA for freelance income?
Yes, if the freelance work falls under an eligible specified profession and the taxpayer meets the conditions prescribed under Section 44ADA.

2. Which ITR should a salaried person with freelance income file?
ITR-1 is generally not suitable once business or professional income is involved. Eligible presumptive taxpayers may use ITR-4; others may need ITR-3.

3. Is the entire freelance receipt taxable under Section 44ADA?
Not necessarily. Under Section 44ADA, at least 50 per cent of eligible gross professional receipts is generally treated as taxable professional income.