Tax Regime Comparison for Freelancers and Consultants
- PRITI SIRDESHMUKH
- Oct 27
- 9 min read
Freelancers and consultants in India must choose between the old tax regime, with its broad range of deductions, and the new regime, which offers lower rates but limited exemptions. The decision impacts tax liability, ease of filing, and long-term planning. Both regimes are available each year, allowing professionals to opt for whichever reduces their tax outgo most effectively. With recent updates in Budget 2025, including revised slabs and higher standard deductions, understanding these differences has become even more important for independent professionals navigating compliance.
Table of Contents
Tax Regime Comparison for Freelancers and Consultants in India
Freelancers and consultants in India face a unique tax situation because their income is not categorised as salary but under the head “Profits and Gains of Business or Profession.” This gives them the flexibility to choose between the old tax regime, which allows multiple deductions and exemptions, and the new regime, which simplifies filing but restricts deductions. Understanding how each regime impacts tax liability is crucial for making an informed decision.
The best choice between the old and new tax regime depends on the income level, investment habits, and allowable expenses of the freelancer or consultant. Those with substantial deductions usually benefit from the old regime, while those preferring simplicity and lower upfront rates may find the new regime more suitable.
Old Tax Regime for Freelancers and Consultants
The old tax regime provides access to a wide range of deductions and exemptions. Freelancers can reduce taxable income by claiming deductions under Chapter VI-A of the Income Tax Act, such as:
Section 80C for investments in PPF, ELSS, or LIC premiums
Section 80D for health insurance premiums
Section 80G for donations
Section 80JJAA for employment generation in certain cases
Additionally, freelancers can deduct legitimate business expenses under Section 37. This includes costs such as internet bills, laptop and software purchases, co-working space rentals, travel expenses for professional purposes, and even rent paid for a home office.
The main advantage of the old regime is that taxable income can be brought down significantly if deductions and expenses are high. However, tax rates are relatively higher compared to the new regime, and compliance often requires maintaining proper documentation and books of accounts.
New Tax Regime for Freelancers and Consultants
The new regime was introduced to simplify the tax system and lower rates across various income slabs. However, it eliminates most deductions and exemptions, except for a few such as employer NPS contributions.
For freelancers and consultants, the new regime means:
Lower rates in the initial income slabs compared to the old regime
No deductions for Section 80C investments, health insurance, or donations
Limited scope for business expense claims
This regime benefits individuals who do not have substantial deductions to claim or prefer a hassle-free approach with minimal paperwork. Many new freelancers or consultants often prefer this regime because it reduces the complexity of tax planning and filing.
Choosing Between Old vs New Regime for Freelancers
The choice between the old and new tax regime should be made after evaluating actual income, expenses, and investments. A freelancer with high expenses such as rent, professional subscriptions, and health insurance premiums is more likely to benefit from the old regime due to deductions. On the other hand, a consultant with minimal deductions but steady income may find the new regime more cost-effective.
The presumptive taxation scheme under Section 44ADA is another factor. Under this scheme, 50% of gross professional receipts are deemed as income, and no further expense claims are needed. If opting for 44ADA, many freelancers choose the new regime for simplicity, while those outside presumptive taxation often calculate both regimes before deciding.
Key Tax Filing Considerations for Freelancers and Consultants
Freelancers and consultants need to understand that tax compliance goes beyond simply choosing between the old and new regimes. Their income is classified under the head “Profits and Gains of Business or Profession,” which brings with it specific filing requirements and responsibilities. Unlike salaried employees, they must carefully evaluate how their professional earnings, expenses, and tax obligations are reported.
Those who maintain detailed books of accounts, including records of income and business-related expenses, are generally required to file ITR-3. This form is suitable for individuals whose income is derived from self-employment or consultancy and who need to present a detailed picture of their profits and expenses. Filing ITR-3 allows freelancers to claim actual expenses incurred in the course of business, which helps reduce taxable income, but it also demands proper bookkeeping and supporting documentation.
On the other hand, freelancers who want a simpler approach can opt for presumptive taxation under Section 44ADA. This scheme allows 50 per cent of gross professional receipts to be declared as income, with the remaining 50 per cent deemed as expenses, eliminating the need to maintain extensive books of accounts. Those choosing this option typically file ITR-4, which streamlines the process and is especially useful for professionals with relatively lower incomes or fewer expenses to claim.
In addition to filing the correct return, freelancers are responsible for paying advance tax if their total tax liability exceeds ₹10,000 in a financial year. Advance tax payments must be made in instalments by the due dates set by the Income Tax Department, and failure to comply can attract interest penalties under Sections 234B and 234C. This requirement ensures that taxes are paid throughout the year rather than in a lump sum at the end.
Freelancers whose annual turnover exceeds the prescribed GST threshold, currently ₹20 lakh for services in most states and ₹10 lakh in special category states, must also register under GST. Once registered, they are required to issue GST-compliant invoices, file periodic GST returns, and pay applicable tax on professional receipts. Compliance with GST regulations is important not only for avoiding penalties but also for claiming input tax credit on eligible expenses.
Equally important is maintaining proper documentation. Freelancers should keep records such as invoices issued to clients, expense receipts for professional tools or office rent, digital records of transactions, and bank account statements. These documents serve as evidence in case of assessments or scrutiny by the tax authorities and are critical for substantiating claims of expenses and deductions. Proper record-keeping also ensures smoother filing, accurate reporting of income, and reduced chances of mismatches with data available to the Income Tax Department through systems like Form 26AS and the Annual Information Statement (AIS).
Bank Accounts and Documentation for Freelancers
A proper banking setup ensures smooth tax compliance. Freelancers should maintain a separate bank account for professional transactions to distinguish personal and business income.
Key points include:
Opening a current account if the transaction volume is high
Ensuring PAN and Aadhaar linkage with the bank account
Submitting required forms, such as 26AS or income certificates for certain accounts
Regular reconciliation of bank statements with invoices and receipts
This not only simplifies filing but also ensures accurate TDS credit matching with the Income Tax Department.
Latest Tools for Simplified Filing: TaxBuddy Mobile App
Managing taxes can be overwhelming for freelancers, especially with multiple income streams and compliance obligations. The TaxBuddy mobile app provides a practical solution by offering:
Pre-filled ITR forms after uploading professional receipts and documents
Automated categorisation of professional income and expenses
Accurate TDS matching for freelance payments
Filing options under presumptive taxation (Section 44ADA) with minimal effort
Expert chat support for handling complex tax queries
Real-time refund status tracking and compliance reminders
By combining automation with expert guidance, TaxBuddy helps freelancers and consultants achieve accurate, timely, and stress-free filing.
Conclusion
For freelancers and consultants, both the old and new tax regimes have merits depending on deductions and expenses. While the old regime favours those with substantial tax-saving investments and claims, the new regime appeals to professionals looking for simplicity and lower upfront rates. With evolving tax rules and growing compliance needs, digital solutions play a vital role in easing the process. For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy offers flexibility by providing both self-filing and expert-assisted options. Freelancers and consultants who are comfortable with technology can use the app’s AI-powered interface to upload documents, auto-fill ITR forms, and file independently. For those dealing with complex cases such as multiple income streams, capital gains, or GST compliance, expert-assisted plans provide professional review and filing support. This dual model ensures that both simple and complex tax situations are handled accurately.
Q2. Which is the best site to file ITR?
While the official Income Tax Department portal is the primary site for filing returns, many taxpayers prefer platforms that simplify the process. TaxBuddy stands out because it combines automation with expert guidance, helping freelancers avoid errors and maximise savings. Unlike portals that only offer DIY filing, TaxBuddy also provides assistance with notices, presumptive taxation, and TDS reconciliation, making it a more comprehensive choice.
Q3. Where to file an income tax return?
An income tax return can be filed directly on the Income Tax Department’s e-filing portal at incometax.gov.in. However, this requires taxpayers to fill in details manually and understand applicable sections. For freelancers and consultants managing multiple income streams, filing through platforms like TaxBuddy is often preferred, as it streamlines the process, reduces manual entry, and ensures correct ITR form selection.
Q4. Can freelancers claim business expenses under the new tax regime?
The new tax regime restricts most deductions and exemptions. Freelancers cannot claim common expenses such as internet bills, rent, or professional tools under this regime. These deductions are only available under the old regime. Therefore, freelancers who incur significant business-related costs generally benefit more from the old regime, while those with minimal expenses may find the new regime more advantageous.
Q5. What ITR form should freelancers use?
Freelancers maintaining detailed books of accounts are required to file ITR-3. Those opting for presumptive taxation under Section 44ADA, where 50% of gross receipts are considered income, can file ITR-4. Choosing the right ITR form is critical because filing under the wrong form may render the return defective under Section 139(9). TaxBuddy’s system automatically suggests the correct form based on income details provided.
Q6. Can freelancers switch regimes each year?
Yes, freelancers can choose between the old and new regimes every financial year while filing their returns. This flexibility allows them to run calculations annually and decide which option lowers their tax liability. For example, a consultant with high investments in one year may prefer the old regime, while in another year with fewer deductions, the new regime might be more suitable.
Q7. Do freelancers need to pay advance tax?
Yes, freelancers must pay advance tax if their annual tax liability exceeds ₹10,000. Advance tax is paid in four installments during the financial year, based on estimated income. Failing to pay advance tax may result in interest under Sections 234B and 234C. Using TaxBuddy can help freelancers calculate liabilities accurately and receive reminders for instalment due dates.
Q8. Is GST applicable to freelancers?
GST applies to freelancers if their annual turnover exceeds the prescribed threshold, which is ₹20 lakh for services in most states (₹10 lakh in special category states). Even if turnover is below the limit, freelancers working with clients who deduct GST may need registration. Compliance involves issuing GST invoices, filing returns, and claiming input tax credit, all of which can be managed with professional support.
Q9. Can freelancers claim HRA under any regime?
HRA (House Rent Allowance) is typically a benefit for salaried individuals. Freelancers, since they are not salaried employees, cannot claim HRA directly. However, under the old tax regime, freelancers can treat rent paid for office space or a home office as a deductible business expense. This effectively reduces taxable income in a similar way to HRA claims for salaried employees.
Q10. How does TaxBuddy help with notices?
Tax notices can arise due to mismatches in income reporting, non-filing, or discrepancies in TDS. TaxBuddy provides post-filing assistance by helping freelancers interpret notices, draft responses, and submit clarifications online. This service reduces stress for freelancers who may not fully understand the legal language or compliance procedures in notices issued by the Income Tax Department.
Q11. Can presumptive taxation be used with the new regime?
Yes, presumptive taxation under Section 44ADA can be combined with the new regime. Freelancers declaring 50% of gross receipts as income can choose to file under the new regime for lower tax slabs. However, they cannot claim additional deductions such as Section 80C or Section 80D in this case. The decision depends on whether the overall tax outgo is lower with or without deductions.
Q12. What documents should freelancers keep for tax filing?
Freelancers should maintain proper documentation to ensure smooth filing and avoid scrutiny. Essential documents include invoices issued to clients, expense receipts (rent, utilities, subscriptions), bank account statements, Form 26AS, AIS (Annual Information Statement), and TDS certificates (Form 16A). Keeping these records organised helps in claiming deductions, ensuring accurate income reporting, and defending against any future assessments.
