Salaried Developer with a Freelance Side Income? Here’s How to File Your ITR

If you earn salary income and do freelance projects on the side, you cannot file ITR-1 or ITR-2. You need to file ITR-3 or ITR-4. The benefit is that you can use Section 44ADA if you meet its conditions (now called Section 58). Employer TDS covers salary and it does not cover freelance income. You are responsible for paying advance tax and completing ITR requirements for your freelance income.

In this article, I’ll cover which form to file, how tax calculation and payment works across both income streams, and what to check before filing.

First, check your employment contract

Before you look at tax forms, check your employment contract.

This is important because tax filings and employer permission are separate issues. Your ITR is filed with the Income Tax Department, not your employer.

If your offer letter, HR policy, code of conduct, or moonlighting clause restricts outside work, the issue becomes a contract issue. Proper tax filings do not remove that employment risk.

Simply put, it might not be worth risking your main income for side projects.

Which ITR form do you file?

A salaried person with freelance income can not file salary-only ITRs.

The freelance income goes under ITR form part called “Income from Business or profession”. This part is unavailable in ITR-1 and ITR-2. You will have to file ITR-3 or ITR-4.

Also, this is a common question, but you do not file two separate ITRs. You report all your income during the year in a single ITR form. Different types of incomes go in different parts of single ITR form.

The basic decision: ITR-3 vs ITR-4

Both ITR-3 and ITR-4 allow you to use Section 44ADA (Now Section 58). It is NOT a deciding factor for whether you need to file ITR-3 or ITR-4.

ITR-4 is the simpler option. It is a shorter version of ITR-3. But it is not applicable if you have certain types of Income (like short term capital gains) or have to report certain types of information (like unlisted shares, directorship and foreign assets).

ITR-3 is the detailed version. If you have certain types of Income or reporting requirements or want to avoid using Section 44ADA or Section 44AD, you will have to file ITR-3.

There are a few scenarios where you will have to file ITR-3. The common ones are listed below:

📌 Note 1: Having salary income does not force you to File ITR-3. If you do not fall in the above categories, you can still file ITR-4 for reporting your salary + freelance Income.

📌 Note 2: Income from working for foreign clients is not considered as foreign sourced Income. It is Indian sourced Income. Working for foreign clients while sitting in India is called Export of services.

📌 Note 3: You cannot file ITR-3 if you are investing in foreign shares through Indian Brokers like IND Money. Investing in foreign assets through Indian brokers is still considered as holding foreign assets.

How your freelance income gets taxed alongside your salary

In ITR form, Income from different sources is reported in different parts of the form. The final income from these different parts is then totalled up and taxes are calculated on the sum total of all parts. Freelance Income goes under “Income from Business or Profession.” Salary Income goes under “Income from Salary”.

The final Income from these two parts is totalled and then the applicable taxes are calculated on this combined amount.

For example, let’s say a Bengaluru developer earns Rs. 18 lakh salary and receives Rs. 8 lakh freelance receipts in FY 2025-26 through bank transfer. The developer uses Section 44ADA and follows new tax regime.

In the above calculation, the taxes will be calculated on Rs. 21.25 lakhs.

Also, the standard deduction of Rs. 75,000 applies to salary. It does not apply to professional income.

Under Section 44ADA, taxable freelance income is 50% of gross receipts. You cannot deduct expenses like laptop cost, internet bills, rent, electricity, software tools or platform fees. The law has already assumed expenses through the 50% rule.

Old regime or new: Which is better when you have both salary and freelance income?

The tax regime is selected at the ITR level. In other words, you do not choose one regime for salary and another regime for freelance income. One tax regime applies to the total income.

The default option is the “new tax regime”. It does not allow you to claim most of the deductions. But, in return, it has a lower tax rate up to annual Income of 24 lakhs per year.

Another major benefit of the new regime is that you pay zero taxes on your freelance + salary Income + interest/dividend Income if the total is less than 12 lakhs for the year. You will still have to pay taxes on capital gains or crypto Income.

Lastly, under the new tax regime, the standard deduction from salary Income is Rs. 75000. This is Rs. 25000 more than the standard deduction under the Old Tax Regime.

The new tax regime is the right choice in almost all the scenarios.

The benefit of going for the old tax regime is that you can claim deductions for life insurance, health insurance, PF contributions, home loan, HRA, donations, education loan etc. I am sharing the table showing the total deductions you need at various income levels for the Old tax regime to make sense.

Tax on freelance Income: Your responsibility

Your employer deducts TDS only on your salary under Section 192. It does not cover your freelance income. Paying and filing Income tax for Freelance income is your responsibility.

Also, if your total tax due after all TDS is Rs. 10,000 or more, you must pay advance tax.

When do you need to pay advance tax?

Advance tax is paid in four installments:

If you use Section 44ADA, you can pay the full advance tax for your freelance income in one installment by 15 March.

This one-time payment rule applies only to income covered under Section 44ADA. For other income like capital gains or interest, you must follow the regular installment schedule.

What happens if you miss the advance tax deadline?

Interest applies under Sections 234B and 234C (now called section 424 and 425).

Section 234B applies if the total advance tax you paid is less than 90% of your final tax liability. In this case, interest is charged at 1% per month (or part of a month) on the unpaid amount, starting from 1 April of the assessment year until the tax is fully paid.

Section 234C applies when you miss or underpay any of the advance tax instalments during the year. Interest is charged at 1% per month on the shortfall for each installment.

Reconcile AIS before you file

AIS reconciliation is important because the Income Tax Department already receives income data from different sources.

Before filing, check:

• Form 16 from employer
• Form 26AS
• AIS
• salary TDS under Section 192
• client TDS under Section 194J
• freelance invoices
• bank credits
• foreign inward remittance advice
• payment platform statements
• Upwork, Deel, Fiverr, or similar balances
• interest, dividend, and capital gains entries

If a foreign client deducts foreign tax, you still report the full income in India. Foreign tax credit is claimed through Form 67 with proof of tax paid outside India.

If your client pays in crypto, the tax point starts when the crypto reaches the wallet controlled by you. The fair market value in INR on the date of receipt becomes professional income. If you sell, swap, or spend that crypto later, Section 115BBH applies to the gain. That is a separate tax event.

Deductions you can claim on freelance income

Deduction is a technical term under the Income Tax Act. It means reduction in taxable Income due to expenses or investments even if the expense or investment is not directly related to earning that Income.

For Income earned before 31st March 2026, you could claim all the available deductions like life insurance, health insurance, education loan, HRA, etc against your freelance Income.

For Income earned on or after 1st April 2026, you cannot reduce taxes on freelance Income by claiming these deductions. If taxes on your salary income fall to zero and you still have deductions left, you cannot claim them to reduce the taxes on your freelance income. This is due to Section 58 (4) of Income Tax Act, 2025.

Expenses you can claim from freelance income

Expense is a cost you pay to generate your revenue and maintain its activities. As a freelancer, you could be paying for stuff like:

• Sub-contractors
• Laptops
• Mobile and Internet
• Travelling Expenses
• Upwork credits
• CA Fees

But, under Section 44ADA (now Section 58), you cannot claim any expenses to reduce your taxable Income. 44ADA assumes that your expenses are 50% of your revenue.

If your expenses are more than 50% of your revenue AND you want to save taxes by declaring the actual expenses, you will have to maintain books of accounts + pay advance tax on quarterly basis + maintain proof of these expenses + get your books audited by a chartered accountant.

This is a lengthy and expensive process. Expect to pay anywhere between 1.5 lakhs to 3 lakhs a year for the whole process.