Freelancers, YouTubers, influencers: 5 tax traps you must avoid in AY 2025-26

From UPI gigs to YouTube monetisation, your side hustle is now fully visible to the Income Tax Department — and it’s time creators took tax seriously. With real-time financial reporting tools like Form 26AS and AIS (Annual Information Statement) tracking everything from affiliate income to platform payouts, the era of “small gigs don’t count” is officially over. According to CA Ganesh Mudda, “If it’s income, it’s taxable — no matter where it comes from or how small it seems.”

In FY 2024–25, content creators, freelancers, and influencers need to be extra cautious, especially with several new rules and stricter data sharing norms in place. Mudda outlines five common tax traps digital earners should steer clear of:

1. Assuming side income is tax-free

A common myth among salaried individuals is that side gigs like freelance design, coaching, or writing don’t need to be declared. “This income is considered as ‘Profits and Gains from Business or Profession’ and must be reported under ITR-3 or ITR-4,” Mudda explained. Ignoring this can lead to tax notices or penalties later.

2. Skipping invoices, documentation

Even if clients pay via UPI, NEFT, or PayPal, without a proper invoice trail, defending your earnings — or claiming expenses — becomes difficult. “Use free invoice tools like Vyapar, Zoho, or Google Sheets to log every project,” he advised. Accurate records help in justifying both income and deductions.

3. Not claiming work-related expenses

Phone bills, internet charges, camera gear, editing software, and even your home-office rent could qualify as tax-deductible expenses. But many creators miss out due to poor documentation. “Preserve all bills, and link payments via bank statements. You can significantly reduce your taxable income this way,” he added.

4. Ignoring advance tax requirements

Unlike salaried employees, freelancers and digital workers don’t have tax automatically deducted at source (TDS). If your total tax due exceeds Rs 10,000 in a year, you’re required to pay advance tax quarterly. Missed payments lead to interest under Sections 234B and 234C of the Income Tax Act.

5. Filing the Wrong ITR Form

Many mistakenly file ITR-1 while having business or professional income — which often triggers a “defective return” notice. If you’re maintaining books, choose ITR-3. If you prefer presumptive taxation, go with ITR-4 (Sugam).

What’s new for creators in 2025?

For the first time, the Income Tax Department has officially recognised influencers as a separate category of professionals. A new profession code – 16021 – now applies to those earning via brand promotions, online coaching, and digital platforms. This must be used when filing ITR-3 or ITR-4.

Further changes include:

TDS on barter deals: Free gifts or non-cash brand collaborations are now taxable.

Increased GST monitoring: Creators earning over ₹20 lakh annually (₹10 lakh in NE states) may need to register and charge GST.

More platform-level data sharing: Payment apps and ad platforms are sharing creator earnings data directly with the tax department.

Presumptive Taxation: A Simplified Option
Creators can choose between declaring actual income and expenses or opting for presumptive taxation:

Section 44AD (as business): Declare 8% (or 6% for digital payments) of receipts as income.

Section 44ADA (as profession): Declare 50% of gross receipts as income.

But here’s the catch: content creation isn’t clearly listed as a profession under Rule 6F of the Income Tax Act. This creates ambiguity around audit limits and which section truly applies. Experts advise caution and suggest treating it as a business under 44AD unless advised otherwise.

In 2025, digital visibility equals tax liability. Whether you're running a part-time newsletter, growing a YouTube channel, or coaching on Instagram, it’s crucial to declare your income properly, claim eligible expenses, and file the right ITR form. “Stay compliant, stay prepared — and you won’t just avoid tax traps, you’ll also build a more sustainable financial future,” Mudda concluded.