Filing Income Tax Returns Under Section 44ADA for Freelancers and Managing Tax Audits

Section 44ADA of the Income Tax Act, 1961, offers freelancers and professionals a simpler way to report income and file tax returns. By allowing 50% of professional receipts to be treated as taxable income without the need for maintaining detailed accounts, this presumptive scheme helps reduce compliance burden and audit exposure. It’s ideal for those earning up to ₹75 lakh through digital transactions. Understanding its nuances is essential to avoid penalties and make the most of available deductions while remaining tax compliant.

Freelancers can easily file their returns using ITR-4 under this scheme, and platforms like TaxBuddy simplify the process with expert-guided and automated tools.

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Table of Contents

Understanding Section 44ADA for Freelancers

How Section 44ADA Works for Freelancers

Step-by-Step Guide to File ITR Under Section 44ADA

Tax Audit Under Section 44ADA: When and Why

Managing Foreign Income as a Freelancer

Key Compliance Guidelines for Section 44ADA

Latest Legislative Changes Affecting Freelancers

Conclusion

FAQs

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Understanding Section 44ADA for Freelancers

Section 44ADA is designed for resident professionals who earn income from notified professions such as:

• Legal

• Medical

• Engineering

• Architectural

• Accountancy

• Technical consultancy

• Interior decoration

• Other notified professions under Rule 51A

Freelancers can opt for this scheme if their gross receipts do not exceed ₹50 lakh annually. However, as per the latest update, this limit extends to ₹75 lakh if 95% or more of the payments are received via digital modes such as bank transfers, UPI, or cheques.

This shift encourages digital transactions and simplifies taxation for a large section of India's self-employed workforce.

How Section 44ADA Works for Freelancers

The section allows a presumptive income model, meaning:

• 50% of gross receipts is considered income.

• No need to report actual expenses.

• No requirement to maintain books of accounts.

This presumed 50% covers all operational costs, including rent, utilities, software, travel, and office expenses.

While business expenses can’t be separately claimed, Chapter VI-A deductions like Section 80C (investments), 80D (medical insurance), or 80G (donations) are still available. Taxpayers can reduce their final tax outgo using these provisions.

This model suits solo professionals and independent contractors who wish to minimize documentation.

Step-by-Step Guide to File ITR Under Section 44ADA

1. Choose the Correct Form

To file your income tax return under Section 44ADA, select ITR-4 (Sugam). This return form is specially designed for taxpayers opting for presumptive income schemes, such as those under Sections 44AD, 44ADA, and 44AE. It is suitable for:

• Resident individuals

• Hindu Undivided Families (HUFs)

• Partnership firms (excluding LLPs)

Make sure you do not use ITR-3, which is meant for professionals maintaining detailed books of accounts or not using the presumptive scheme.

2. Log In to the Income Tax Portal

Visit the official e-filing portal and:

• Click ‘Login’ at the top right corner

• Enter your PAN, which also acts as your user ID

• Use your password or login via Aadhaar OTP, DSC, or net banking

• Access the dashboard to begin the filing process

TaxBuddy users can initiate filing directly through the app, which integrates login and form selection for a smoother experience.

3. Enter Gross Receipts

Navigate to the “Income from Business or Profession” section and:

• Select Section 44ADA

• Choose the correct profession code (as per your field – legal, medical, technical consultancy, etc.)

• Enter your gross receipts earned during the financial year

The portal will auto-compute 50% of your gross receipts as presumed taxable income. You won’t need to enter expense details separately.

4. Add Other Income and Deductions

After declaring your professional income:

• Report any other income, such as:

  • Interest on savings

  • Rental income

  • Capital gains, if applicable

• Move to the ‘Deductions’ section and claim eligible deductions under Chapter VI-A, including:

  • 80C – Investments (e.g., PPF, ELSS, Life Insurance)

  • 80D – Medical insurance premium

  • 80G – Donations

  • 80TTA – Interest on savings account

These deductions reduce your overall tax liability.

5. Review Advance Tax & TDS

Access your Form 26AS or Form 16A to:

• Verify Tax Deducted at Source (TDS) by clients or banks

• Confirm whether advance tax was paid in quarterly installments (if applicable)

If any tax has already been paid or deducted, ensure it's reflected in your return. This prevents double taxation and ensures accurate tax credit.

6. Complete and Verify the Return

After filling in all relevant details:

• Use the preview feature to review the return

• Correct any mismatches or validation errors

• Submit the ITR electronically

• Complete e-verification using any of the following modes:

• Aadhaar OTP (linked mobile number required)

• Net banking login for automatic verification

• Electronic Verification Code (EVC)

• Or send a signed physical copy of ITR-V to CPC Bengaluru (if digital verification is skipped)

E-verification is essential for the Income Tax Department to begin processing your return.

Seamless Filing with TaxBuddy

TaxBuddy streamlines this entire process—from form selection to e-verification—through an easy-to-use interface. With built-in compliance checks, AI-based tax insights, and the option to consult a tax expert, freelancers can confidently file their ITR without missing out on deductions or risking errors.

Tax Audit Under Section 44ADA: When and Why

When Tax Audit is Not Required

Freelancers opting for presumptive taxation under Section 44ADA are exempt from tax audit under the following two conditions:

1. Gross Receipts Threshold Not Breached

2. Your total gross receipts from the specified profession must be less than or equal to ₹50 lakh in a financial year.

3. If at least 95% of the receipts are made via digital modes (bank transfer, UPI, net banking, cheques, etc.), this threshold is relaxed to ₹75 lakh.

4. At Least 50% Income Declared

5. You must declare at least 50% of your total gross receipts as your taxable income.

6. This is the core feature of Section 44ADA, which presumes 50% of receipts as profit and the remaining 50% as expenses.

As long as both of these conditions are met, maintaining books of accounts and getting them audited by a Chartered Accountant is not required.

When Tax Audit Becomes Mandatory

You will be required to undergo a tax audit under Section 44AB in the following cases:

1. Gross Receipts Exceed the Limit

2. If your total gross receipts from the profession exceed ₹50 lakh, or ₹75 lakh (in case of 95%+ digital receipts), you cannot use Section 44ADA.

3. You must then maintain books of accounts as per Section 44AA and get your accounts audited by a Chartered Accountant under Section 44AB(b).

4. Income Declared is Less Than 50% + Income Exceeds Exemption Limit

5. If you declare less than 50% of your gross receipts as income, and your total income exceeds the basic exemption limit, then audit becomes compulsory.

6. For most individuals below 60 years, this exemption limit is ₹2.5 lakh.

Example:If your gross receipts are ₹40 lakh and you declare only ₹18 lakh as income (i.e., 45%), and your total income after deductions is ₹3 lakh (above ₹2.5 lakh), then tax audit is mandatory.

What Does a Tax Audit Involve?

1. Chartered Accountant CertificationA CA registered with the ICAI must audit your books and certify them in Form 3CB & Form 3CD.

2. Submission DeadlineThe audit report must be uploaded on the income tax portal by September 30 of the relevant assessment year.

3. Reporting ObligationsThe audit includes details like nature of business, compliance with accounting standards, depreciation, TDS, and any inadmissible expenses.

Managing Foreign Income as a Freelancer

Freelancers often receive payments from overseas clients. Here’s how taxation works:

1. Residents must pay tax on global income. Convert foreign receipts to INR using RBI’s exchange rate on the date of receipt.

2. Non-residents (NRIs) pay tax only on income received or accrued in India.

Section 44ADA applies only to residents, so NRIs cannot opt for this scheme. However, if you become a resident due to prolonged stay, you must include foreign income accordingly.

It's advisable to maintain basic proof like invoices, bank remittance details, and currency conversion rates for records.

Key Compliance Guidelines for Section 44ADA

Even with simplified rules, a few compliance essentials remain:

1. Advance Tax: Pay quarterly installments if estimated tax exceeds ₹10,000 annually.

2. Basic Recordkeeping: Keep invoices, bank statements, and digital receipts—even if books are not mandatory.

3. TDS Reporting: Ensure client deductions are reflected in Form 26AS.

4. E-Verification: Complete on time to avoid return rejection.

Platforms like TaxBuddy automate these checks, minimizing missed steps and helping with reminders and document uploads.

Latest Legislative Changes Affecting Freelancers

The Income Tax Bill, 2025 introduced significant updates:

• Threshold increased to ₹75 lakh, provided 95% receipts are digital.

• Continued focus on digital payment adoption for small professionals.

• Audit applicability remains unchanged — mandatory only if income is underreported or gross receipts cross limits.

These reforms aim to further simplify compliance while reducing cash-based transactions in the professional sector.

Conclusion

Section 44ADA empowers freelancers with a tax regime that values simplicity and digital compliance. By eliminating the need for detailed accounts and offering deductions through presumptive taxation, it reduces both errors and the burden of audits. Freelancers earning under ₹75 lakh digitally can file their returns with ease using platforms like TaxBuddy, which offers automated tools, expert support, and timely filing reminders.

For a simplified and hassle-free filing experience, download the TaxBuddy mobile app today and streamline your taxes like a pro.

FAQs

Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?

TaxBuddy provides both options. Freelancers comfortable with e-filing can use the self-filing interface, which includes smart tax calculators, document uploads, and auto-fill options. Those looking for personalized guidance can opt for expert-assisted filing, where tax professionals review and file the return on your behalf. This flexibility ensures every user can choose the level of support they need.

Q2. Which is the best site to file ITR?

While the official Income Tax Portal is available for free filing, platforms like TaxBuddy offer a better user experience with intelligent checks, deduction suggestions, and personalized support. TaxBuddy’s platform helps freelancers avoid common errors and optimize their tax-saving potential, especially under presumptive schemes like Section 44ADA.

Q3. Where to file an income tax return?

Income tax returns can be filed on the government e-filing portal or through authorized platforms such as TaxBuddy, ClearTax, and others. For freelancers under Section 44ADA, using a platform with guided input fields and pre-filled forms can reduce mistakes and save time.

Q4. Can freelancers claim actual expenses under Section 44ADA?

No. Section 44ADA assumes that 50% of gross receipts covers all professional expenses. Freelancers cannot claim actual expenses separately. However, Chapter VI-A deductions, such as those under Sections 80C, 80D, and 80G, can still be claimed to reduce taxable income.

Q5. What happens if my receipts exceed ₹50 lakh or ₹75 lakh?

If gross receipts exceed ₹50 lakh, or ₹75 lakh where 95%+ payments are digital, you become ineligible for Section 44ADA. You must then maintain books of accounts and may be required to undergo a tax audit under Section 44AB. You’ll also have to file ITR-3 instead of ITR-4.

Q6. Is advance tax payment mandatory for freelancers under Section 44ADA?

Yes. Freelancers must pay advance tax in four installments if their estimated tax liability for the year exceeds ₹10,000. Even under presumptive taxation, this rule applies. Missing deadlines can attract interest under Sections 234B and 234C.

Q7. Can foreign income be included under Section 44ADA?

Yes, but only if you are a resident individual. Income earned from foreign clients is taxable if received in India or accrued to a resident taxpayer. Ensure foreign currency receipts are converted to INR as per RBI exchange rates on the date of receipt. Non-residents (NRIs) are not eligible for Section 44ADA.

Q8. What is the due date for filing returns and tax audit reports?

• ITR filing (non-audit cases): July 31 of the assessment year.

• Tax audit cases (Section 44AB): September 30 of the assessment year.These dates may vary each year based on government notifications. Filing late can result in penalties under Section 234F.

Q9. Can deductions under Section 80C and 80D still be claimed?

Yes. Freelancers under Section 44ADA can claim all eligible deductions under Chapter VI-A, including:

1. 80C: PPF, ELSS, Life Insurance, etc.

2. 80D: Health insurance premium

3. 80G: Donations

These deductions help lower your overall tax liability, even under the presumptive scheme.

Q10. Is ITR-4 mandatory for all Section 44ADA filers?

Yes. Freelancers using Section 44ADA must file ITR-4 (Sugam). This form is specifically designed for taxpayers under presumptive income schemes and includes pre-filled sections for income, TDS, and deductions.

Q11. Do NRIs qualify for presumptive taxation under Section 44ADA?

No. Only resident individuals, HUFs, and partnership firms (excluding LLPs) engaged in eligible professions can opt for Section 44ADA. NRIs are not permitted to use this section, even if they earn income from professional services in India.

Q12. What’s the best app for freelancers to manage tax filing?

The TaxBuddy mobile app is one of the best choices for freelancers. It offers guided ITR filing, TDS tracking, advance tax calculators, and real-time CA assistance. The interface is intuitive and ideal for professionals using Section 44ADA, making tax filing seamless and error-free.