When you are a freelancer, the tax season maps out a lot different from that of salaried (or sometimes business) individuals. For you, it doesn’t come with HR emails, pre-filled forms, or neatly cut-off salary slips. You would be juggling invoices, GST, bank statements and a fair bit of mental math, and somewhere in there, you also need to figure out how to not lose more money to taxes than necessary.
Speaking to Outlook Money, Niyati Shah, Vertical Head, Personal Tax at 1 Finance, breaks down how freelancers can optimise their taxes and savings in the financial year (FY) 2026 without getting lost in jargon.
1) Old or New Tax Regime: Which one to choose?
The new tax regime (NTR) provides taxpayers with lower slab rates (no tax liability up to an income of Rs 12 lakh). This new regime is even more tempting because of its simplified structure, but it comes with a catch: you lose out on most of the deductions that are available under the old tax regime. This is not always a good trade-off for most taxpayers.
“Freelancers really need to sit down and compare the actual tax outgo under both regimes,” Shah says. If you’re someone who invests under Section 80C, has health insurance (Section 80D), pays off an education loan, or claims HRA, these deductions can significantly lower your taxable income under the old regime.
It gets even more serious for those declaring income under the ‘Profits and Gains from Business or Profession’ head. “If you switch to the old regime after being in the new one, that decision is irreversible; you can’t go back to the new regime later,” Shah adds. In short, freelancers should be mindful and should not click their regime choice casually on the tax portal.
It is important to run the numbers.
2. Is Presumptive Taxation Right for You?
If your freelancing income is under Rs 75 lakh (and 95 per cent of it is received digitally), Section 44ADA offers a huge compliance break. Instead of itemising your expenses, you declare 50 per cent of your gross receipts as taxable income and be done with it. No books of accounts and no audits are needed in this case.
But there is nuance here, too. “This method works best for freelancers who do not incur a lot of expenses. If your actual expenses are significantly higher than 50 per cent of your income, the regular route might save you more,” Shah explains.
Also, you should watch the cash receipts. If your cash payments exceed 5 per cent of your total income, the presumptive cap drops to Rs 50 lakh. That could change your eligibility altogether.
Moreover, presumptive taxation under Section 44ADA also changes how you pay advance tax. Instead of four quarterly installments, you just pay once, i.e., by March 15. That is one less thing to stress about every quarter.
3) Were there any changes in Budget 2025 you should know about?
The Union Budget this year did not throw any curveballs or relief that specifically impacts freelancers. As per Budget 2025, the presumptive taxation limit under Section 44ADA remains Rs 75 lakhs (with 95 per cent digital receipts).
Says Shah, “While no new deductions were introduced for freelancers, staying compliant with Section 194M TDS rules and UDYAM registration (for MSME benefits) is crucial.”
Section 194M applies to individuals paying contractors or professionals over Rs 50,000. This means that even freelancers could be required to deduct TDS in some cases.
UDYAM Registration is important for individuals who are serious about their occupation of freelancing as a business. Getting MSME recognition under UDYAM can provide you many benefits such as easier access to credit and some tax incentives.
Either of these requirements (section or registration) is not strictly about deductions, but both can affect your financial planning in the long run.
4) How to pick the right ITR Form?
Filing the wrong Income Tax Return (ITR) form is a common and costly mistake.
If you are using presumptive taxation under Section 44ADA, ITR-4 is the way to go.
If you’ve got capital gains, foreign income, or are declaring actual expenses: ITR-3 is your form.
Choosing the correct ITR form is more than just tricking off a box since filing the correct form not only improves refund timelines but also avoids any unnecessary notices and helps in smoother verification and processing.
5) How can freelancers structure their income and expenses better to maximise tax benefits?
Freelancers do not have the luxury of a salary slip that cleanly divides components. But that doesn’t mean you can’t optimise.
Explains Shah: To optimise taxes, freelancers should operate through a dedicated current account segment earnings by project/client for better GST and TDS reconciliation.
Another important factor is to ‘Claim everything you’re entitled to’. “Many freelancers forget to account for depreciation on laptops, software subscriptions, co-working space rentals, or even a portion of their rent if working from home,” Shah notes. These are valid business expenses and can reduce your taxable income meaningfully.
Also, think long-term: SIPs under Section 80C, health insurance under 80D, and contributions to NPS under 80CCD(1B) are solid, legitimate ways to invest and reduce taxes.
For those who have started earning significantly more, Shah suggests considering registration as a proprietorship or LLP under MSME. “That opens the door to tax-saving and credit-linked benefits,” she says. It’s a step towards formalising your business and could pay off in more ways than one.
If as a freelancer you rarely have the bandwidth to dive deep into tax codes, a few simple steps and periodic attention can help you keep your taxes lean and clean.
A most important factor is to understand what’s on the table, pick the method that actually works for your work style and income level, and stay compliant.
