Influencers to F&O traders: here's what ITR utility update means for you

Business Standard

2 days ago

As India's digital economy evolves and more taxpayers report income from non-traditional sources like content creation and speculative trading, the Income Tax department has overhauled its ITR utility to introduce a revised list of 'Nature of Business/Profession' codes. This change, effective from assessment year (AY) 2025–26, is designed to bring more clarity, compliance and alignment with sector-specific practices.
Why did the Income Tax department make this change?
The update is a response to the changing economic landscape.
'The revised codes aim to better capture emerging income sources, like social media influencing or F&O trading, while reducing ambiguity in disclosures,' said Parag Jain, chartered accountant & tax head at 1 Finance. The older codes were too generic, leading to inconsistent classification and potential compliance gaps.
The change also boosts the department's analytics and cross-platform matching.
'It is a strategic move to enhance digital governance, improve compliance, and match data with GST and MCA systems,' said Deepak Kumar Jain, founder & chief executive officer of TaxManager.in.
Vivek Jalan, Partner at Tax Connect Advisory Services LLP, noted that the classification will also help the department compare profitability within sectors using AI tools, which may affect how returns are scrutinised.
What changes for small businesses, freelancers, and professionals?
The new codes help taxpayers report income more accurately. For example:
A freelance graphic designer must now use code 14010 instead of the generic 0607
A mobile retailer should now choose code 09019 instead of selecting 'Others'
F&O traders must now use code 21010, replacing older catch-all financial activity codes
YouTubers and influencers have a new code: 16021
'These help align disclosures with actual income and reduce mismatches,' Parag Jain said.
Sonu Jain, chief risk officer at 9Point Capital, added that better classification can also ensure eligibility for presumptive schemes under Sections 44AD/44ADA.
What if the wrong code is selected?
While there's no explicit penalty, the risks are real. 'Wrong codes can trigger AI-based scrutiny, mismatches, or even notices,' Parag Jain noted. 'This is especially critical if the data doesn't match with GST or MSME/Udyam records,' Deepak Kumar Jain added.
Jalan pointed out that if declared profits diverge significantly from industry norms, for instance, an influencer showing just 20 per cent profitability where the average is 50 per cent, they may need to furnish expense justifications.
What should taxpayers and CAs do now?
Experts agree there's no need to revise past filings.
'This is a forward-looking change,' Sonu Jain said. However, accuracy this year is essential. 'Use the latest ITR utility, match codes with GST/MSME records, and verify presumptive scheme eligibility,' Deepak Kumar Jain advised.
In short, the ITR utility's new codes aren't just a formality. They are a signal that the tax system is adapting to modern income sources and taxpayers must adapt too.