A 24-year-old earning ₹8 lakh a year from a job may think their tax filing is straightforward. But what happens when they make another ₹2 lakh from freelancing?
That extra income doesn’t simply get added to the salary slip.
It has to be reported separately, and depending on the nature of the work and the taxpayer’s eligibility, a freelancer may be able to use the presumptive taxation scheme under Section 44ADA to simplify the calculation.
Consider a young professional earning ₹8 lakh from salary and another ₹2 lakh from eligible freelance work.
Under the illustration provided by ClearTax, the calculation under the new tax regime would look like this:
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Salary income: ₹8 lakh -
Standard deduction: ₹75,000 -
Taxable salary: ₹7.25 lakh -
Freelance receipts: ₹2 lakh -
Taxable freelance income under Section 44ADA: ₹1 lakh -
Total taxable income: ₹8.25 lakh
Under the tax rules assumed in the illustration, the taxpayer would qualify for the applicable rebate and the final income-tax liability would be zero, subject to meeting all the conditions.
But there is an important catch: zero tax does not mean zero reporting.
The salary and freelance income still have to be reported correctly, and the taxpayer needs to use the appropriate ITR form and taxation provisions.
For eligible professionals, Section 44ADA can be particularly useful because it allows 50% of eligible gross professional receipts to be treated as taxable professional income, subject to the applicable conditions and limits. That means a person with ₹2 lakh of eligible professional receipts could, under the illustration, have ₹1 lakh treated as taxable income rather than having to calculate taxable profit by maintaining detailed expense accounts.
The provision, however, is not available to every freelancer automatically. Eligibility depends on the nature of the profession and other conditions prescribed under the tax law. “Because the New Tax Regime now provides a full rebate on taxable incomes up to ₹12 lakh, this young earner’s final tax liability drops to exactly zero. By using the right sections and the new regime, they completely legally protect their side hustle earnings from taxation,” explained Gupta.
The ₹2 lakh side hustle is becoming the new normal
The example is becoming increasingly relevant as young Indians add freelance work, investing and other income streams to their salaries.
The share of taxpayers under 25 reporting multiple sources of income has jumped from 14% in AY 2022-23 to 76% currently, according to data cited by ClearTax.
Archit Gupta, Founder and CEO, ClearTax, says the change reflects how young Indians are approaching work and money.
“Today’s under-25s are not waiting for a first corporate paycheck to begin their financial lives,” Gupta said.
Young people are increasingly investing, trading, freelancing or building small ventures while still studying or during their first jobs.
So the first income-tax return of a 24-year-old may no longer contain just salary and bank interest. It could include salary, freelance income, capital gains, dividends and interest.
Your side hustle isn’t taxed like your salary
One of the biggest mistakes young earners can make is assuming that all the money entering their bank account can simply be clubbed together.
It can’t.
Salary is reported under “Income from Salary”, while eligible freelance and professional earnings are generally reported under “Profits and Gains of Business or Profession”.
Investment gains have their own tax treatment.
This matters because the rules for calculating taxable income, claiming expenses, setting off losses and paying tax can differ depending on where the money came from.
For a salaried employee, much of the tax calculation is handled through the employer’s TDS mechanism.
A freelancer may not have that convenience.
If you earn ₹2 lakh from freelance work during the year, there may be little or no tax deducted from that income at source. That does not mean the income is tax-free.
It means you may need to calculate your tax liability yourself and, where applicable, pay advance tax.
The biggest mistake? Filing like you only have a salary
Gupta says young taxpayers often continue filing their returns as though they have a simple salaried income even after their finances have become considerably more complicated.
One common mistake is choosing an ITR form meant for simpler income structures despite having business or professional income. “Because the share of young taxpayers managing complex incomes jumped from 14% to 76% in just a few years, their biggest error is filing taxes like they still have a basic starter job. The most common mistake is trying to squeeze freelance earnings and stock market gains into a basic ITR-1 form, which is meant for simple income structures like salary, bank interest, etc. The second major trap is ignoring the digital trail. The tax department already knows about every small dividend credit, mutual fund sale, or freelance payment because it is all tracked in the Annual Information Statement (AIS). Young earners often forget to check this document and end up getting tax notices for income they simply forgot to report. The easiest way to avoid this is to always download the AIS before filing and accept that building wealth means graduating to the right tax form,” exlplained Gupta.
Another is forgetting small income streams.
A young investor may remember their salary and their big stock-market gains but overlook a dividend payment, bank interest or a small freelance assignment.
That can become a problem because much of this information is already visible to the tax department.
Your AIS knows more about your money than you think
The Annual Information Statement (AIS) has become an important document for anyone with multiple income sources.
It contains financial information reported to the tax department by various entities.
That means a taxpayer should not assume that a small investment transaction or freelance payment is too insignificant to matter.
Gupta advises young earners to download and check their AIS before filing their return.
The practical approach is simple: don’t just file based on your Form 16. Reconcile the information in your AIS with your own records.
If something is missing or incorrect, it is better to resolve the discrepancy before filing.
What if you’re making money from stocks as well?
The tax complications can increase further when a young earner also invests or trades.
A 24-year-old could potentially have:
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₹8 lakh salary -
₹2 lakh freelance receipts -
Capital gains from shares -
Mutual fund gains -
Dividend income -
Bank interest
Each income stream can have different tax treatment.
Investors also need to understand how eligible losses can be set off against gains and whether losses can be carried forward under the applicable rules.
Tax-loss harvesting can be useful, but it should not mean selling an investment purely for tax reasons. The investment decision should come first.
And then there is advance tax
This is another area where young side-hustlers can get caught out.
When you earn a salary, your employer generally deducts tax through TDS during the year.
But if your freelance income or other taxable income is not adequately covered by TDS, you may need to make advance-tax payments if your liability meets the applicable threshold.
Ignoring this until the end of the financial year can result in interest costs.
What is driving the sharp rise in under-25 filers reporting multiple income sources, from 14% in AY 2022-23 to 76% currently?
“The biggest driver is a change in mindset. Today’s under-25s are not waiting for a first corporate paycheck to begin their financial lives. Many start investing, trading, freelancing or building a small venture while still studying or in their very first job, treating several income streams as normal rather than exceptional. App-based investing has made a demat account almost as common as a bank account in this age group, so capital gains, and increasingly futures and options activity, now appear on returns that once carried only a single salary. The creator economy adds freelance, consulting and content income alongside it. Two things then make all of this visible on the return itself: near-complete income reporting through the AIS and TDS system, so these earnings can no longer simply be left off, and filing tools that make a multi-income return manageable without an advisor. The result is a generation whose very first return already reads like that of an investor and an independent earner, not just an employee,” said Gupta. For the 24-year-old earning ₹8 lakh from a job plus ₹2 lakh from freelancing, the key lesson is simple: You may legally be able to bring your tax bill down to zero. But you cannot make the income disappear from your tax return.
