Salary or freelancing on ₹25 lakh: the take-home compared

Same ₹25 lakh, two tax bills

A software developer is weighing a ₹25 lakh salary against ₹25 lakh a year of contract work for the same kind of clients. The money is identical. The tax is not, because the two arrive under different heads of income.

A salary is taxed almost in full, less a ₹75,000 standard deduction in the new regime. Professional receipts can use presumptive taxation: you declare half your gross receipts as profit, the other half is deemed to be expenses, and you pay tax on the half that remains. The Income-tax Act 2025 moved this from section 44ADA into section 58 from 1 April 2026, with the same 50% and the same ceilings. The full mechanics are in our guide to freelancing and presumptive tax.

The tax, side by side

All figures are FY 2026-27, including 4% cess.

The new regime wins on both sides here, as it does for most people without large deductions; the old vs new regime calculator checks your own case.

The freelancer's ₹52,000 needs a word. On ₹12.5 lakh the slab tax would be ₹67,500 before cess. But the new regime gives a full rebate up to ₹12 lakh of income, and marginal relief says tax just above that line cannot exceed the income above it. Income is ₹50,000 over, so tax is ₹50,000 plus cess. Our post on the Section 87A rebate explains the cliff.

That produces a strange result. Billing ₹24 lakh means ₹12 lakh of presumptive income and zero tax. Billing ₹25 lakh means ₹52,000. The extra ₹1 lakh of receipts costs ₹52,000 in tax. The relief zone runs up to about ₹25.4 lakh of receipts; above that, ordinary slab rates apply again, ₹78,000 at ₹26 lakh and ₹1,09,200 at ₹30 lakh. The Section 44ADA calculator shows the band.

From tax to take-home

The tax gap is ₹2,67,800. Take-home needs two more lines: what the freelancer actually spends to work, and what the employer pays that never shows up as salary.

Assume the freelancer spends ₹2 lakh a year: a laptop spread over its life, internet, a co-working desk, an accountant, and a family health policy that an employer would otherwise provide. For the salaried side, assume the ₹25 lakh is gross salary with a basic of ₹12.5 lakh, and the employer adds 12% of basic to provident fund on top.

On take-home alone the freelancer is ₹67,800 ahead. Count the employer's PF contribution, which is tax-free within the limits, and the gratuity that builds up once five years are served, and the employee is ₹1,42,296 ahead. Solving for the billing at which the two totals meet gives about ₹26.7 lakh. The salary vs freelance calculator does the tax half; the EPF and gratuity calculators price the rest, and decoding your CTC shows which parts of a package are cash.

Leave and income gaps are not in the table. An employee is paid during holidays and sick days; a freelancer with six unbilled weeks a year loses about an eighth of revenue.

The conditions for using presumptive tax

The scheme is generous, and the conditions are specific:

1. Who: a resident individual, HUF or partnership firm. An LLP or a company cannot use it.
2. Which work: a notified profession: legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, company secretary, information technology, authorised representative or film artist. A general consultant outside the list does not qualify, even if clients deduct TDS on professional fees.
3. How much: gross receipts up to ₹50 lakh, or up to ₹75 lakh if cash receipts are 5% or less of the total. A cheque that is not account-payee counts as cash.
4. No extras: the 50% is final. No further expense claims, and no standard deduction, because this is business income, not salary.
5. Declaring less than 50% is allowed only with books of account and an audit, if total income exceeds the basic exemption limit.

There is no lock-in for professionals. You can use it one year and not the next, unlike the five-year rule for businesses.

Cash flow is different too

Indian clients usually deduct TDS at 10% on professional fees above ₹50,000 a year, which the TDS calculator covers. On ₹25 lakh that is ₹2,50,000 withheld against a final tax of ₹52,000, so about ₹1,98,000 waits as a refund until the return is processed. Foreign clients deduct nothing, so the tax is yours to pay.

That payment is simpler than an employee might fear. A presumptive filer pays advance tax in one instalment by 15 March, not four; the advance tax calculator and the guide to advance tax and TDS cover the interest if it is late. GST is a separate question that turns on turnover and on whether clients are in India or abroad; the GST calculator does the invoice maths.

Without payroll, the freelancer also has to build what an employer provides: a larger emergency fund for irregular income, retirement savings to replace PF, for instance through NPS, and health cover. Many keep the tax set-aside and the buffer in a liquid fund rather than a current account.

What this comparison leaves out

The ₹2 lakh of costs, the 50% basic and the PF on top are assumptions; change them and the break-even moves. The example ignores professional tax, the employee's own PF deduction, ESOPs, bonuses and the higher income a freelancer may charge for the same skill. It uses FY 2026-27 slabs under the Income-tax Act 2025. It is not tax advice, and the choice between a job and contract work rests on far more than the tax table.