Many salaried employees earn additional income through freelancing, consulting, online businesses or other side activities. If this income is taxable, it needs to be reported while filing the income tax return.The way you report the income depends on its nature. If the activity qualifies as business or professional income, the taxpayer may generally need to use ITR-3 or, if eligible for presumptive taxation, ITR-4. Salary income continues to be reported separately.Here is what salaried employees with side income need to know about reporting it in their ITR.How to report income from a side business?Income from an activity that qualifies as business or professional income is generally reported under the head 'Profits and Gains from Business or Profession'.For AY 2026-27, individuals and HUFs with business or professional income can generally file ITR-3, subject to the eligibility conditions for the other ITR forms. Eligible taxpayers who meet the conditions for presumptive taxation can use ITR-4.For example, if a salaried software developer also develops and sells software independently, the salary received from the employer and income from the independent activity are reported according to the rules applicable to each source.Which ITR form should salaried employees with side income use?The correct ITR form depends on the taxpayer's income and eligibility.ITR-3: This is generally applicable to individuals and HUFs having income from business or profession who are not eligible to file ITR-1, ITR-2 or ITR-4.ITR-4: Eligible resident individuals, HUFs and firms other than LLPs can use ITR-4 when their income falls within the prescribed conditions for the form, including eligible income under the presumptive taxation provisions. For AY 2026-27, the total income limit for ITR-4 is Rs 50 lakh.Therefore, a salaried employee should not select an ITR form only because they receive salary. The additional business or professional income and the taxpayer's overall circumstances also need to be considered.Can you claim expenses for a side business?The treatment of expenses depends on the type of income.Salary income does not allow employees to deduct their actual employment-related expenses. Instead, taxpayers can claim deductions and exemptions available under the applicable tax rules and regime, subject to the relevant conditions.For business or professional income, eligible business expenses can generally be considered while calculating taxable income under the regular method.However, taxpayers using a presumptive taxation scheme follow the specific method prescribed for that scheme rather than calculating taxable income by deducting every actual business expense.Do salaried employees with side income need to pay advance tax?A salaried employee may have tax deducted by the employer from salary. However, additional income from a business or profession can result in an additional tax liability.If the tax payable for the year is Rs 10,000 or more, advance tax may be payable, subject to the applicable conditions and exemptions.For taxpayers who are required to pay advance tax, the regular instalments for individuals are generally:June 15: 15% of the annual advance-tax liabilitySeptember 15: 45% cumulativelyDecember 15: 75% cumulativelyMarch 15: 100% cumulativelyTaxpayers following eligible presumptive taxation provisions have specific rules for payment of advance tax.What about TDS on side-business income?TDS may also apply to payments received for certain business or professional activities, depending on the nature of the payment and the applicable tax provisions.For example, a person providing professional services may receive payment after the payer deducts TDS. The tax deducted can generally be claimed as tax credit while filing the ITR, subject to the applicable rules.However, TDS is not necessarily the same as the taxpayer's final tax liability. The income still needs to be reported in the ITR, and the final tax payable is calculated after considering applicable TDS and other eligible tax credits.Does a side business require GST registration?Income-tax and GST rules are separate. A side business may have GST implications depending on the nature of the supplies, turnover, location and other applicable conditions.GST registration is generally linked to the applicable aggregate-turnover threshold, but the rules also have exceptions and other provisions that can make registration mandatory in specific circumstances.Therefore, a salaried employee running a side business should check whether GST registration, invoicing or other GST compliance requirements apply to the particular activity.Key things to rememberA salary and income from a side business are not reported in the same manner. If the side activity qualifies as business or professional income, it needs to be reported under the applicable income head.The correct ITR form depends on the nature of the income and the taxpayer's eligibility. For AY 2026-27, ITR-3 generally applies to individuals and HUFs with business or professional income who are not eligible for another applicable return, while eligible taxpayers can use ITR-4 if they meet its conditions.Salaried employees with additional income should also check their TDS, advance-tax liability and any applicable GST requirements before filing their return.Disclaimer: This article is for general information and educational purposes only. Tax rules can vary depending on individual circumstances. Taxpayers should refer to the applicable provisions and official government guidance before filing their income tax return.
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