TDS & Refunds for Freelancers in India

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In one of previous post on WorknHire.com we discussed about the Income Tax Implications for the freelancers in India. While we had covered most of the points regarding income tax, one of the questions that most of the visitors of the website kept asking was about TDS and Service Tax. So here we discuss TDS deductions and its implications on a freelancer working in India.

Understanding TDS

TDS common abbreviation for Tax Deducted at Source is the deduction of tax from the income source itself, at the time of earning. The government has adopted the method of TDS to simplify the taxation procedure and to ensure that the payer and receiver are accounting the same while filing their income tax returns.  TDS in plain simple terms is a part of your tax obligation deposited to the government by the payer right at the source.

TDS for freelancers

TDS for freelancers becomes a unknown territory with a lot of unanswered questions ranging from why do I need to pay government TDS? What happens after TDS is deducted? Lets take up a few questions and try to shed some light on this.

Who can deduct TDS from my earning?

Individual/Company from India having a valid Tax Deduction Account Number (TAN) can only deduct TDS from your earning. TAN much like PAN is a account number provided by government to registered entities making it compulsory for them to deduct TDS. Unless your client has a TAN they are not eligible to deduct any TDS. Since companies/individuals from outside of India don’t have this they won’t be deducting TDS from your earnings. Similarly if you are working for a client who is an individual and doesn’t have a TAN number (most individuals won’t be having a TAN unless they are running a business on their name), no TDS is applicable. In such cases depositing Tax through Advance Tax (in some case) becomes your liability. We will cover advance tax implications for freelancers in another post.

What happens after TDS is deducted?

The Company/Individual who has deducted the Tax from your earning has to pay the TDS to the government on your behalf. If they fail to do so, fines are levied on them (you are not responsible for this in any way). Once they have paid the TDS to the government they will be providing you with a certificate called Form 16A which proves that Tax was deducted from your earning and deposited on your behalf. Your client can provide this to you after the end of the quarter when the payment was made.

How much is the TDS for a freelancer?

In case of freelancers, the TDS is 10.3% of the total payment amount. So lets say you have invoiced a client for Rs 50,000 . The client will be making a payment of Rs 44,850 to you and deducting Rs 5,150(10.3%) and depositing it with the government. Once the quarter ends the client will be providing you with a Form 16A which will mention the Rs 5,150 deducted from your payment . It will also have other details like receipt number by which payment was made to government, date when the amount was deposited to government etc.

 TDS and Refunds

Now since we are clear that clients have to deduct TDS and it is compulsory for them (for entities having a TAN), lets review the case where your earnings for the entire financial year doesn’t fall under tax bracket. So lets say you made a  total earning of 1.8 lakh from different clients and each one of them deducted TDS from your earning which would amount to a total TDS of Rs 18,540 (10.3% of 1.8 lakh) . Lets also consider you didn’t have any other source of income. Your total income for the current financial year hasn’t crossed the tax slab of 2 lakh (which is tax free) and hence you don’t need to pay any taxes to the government, what happens then? Well you claim refund from the Income Tax Department. Since TDS was deducted at source without knowing how much your total income for the year would be, you can become eligible for refunds in case the total TDS exceeds the amount of your tax liability. In the example above when you file your IT return you will be requesting for a refund of Rs 18,540 which will be processed by the IT department after checking details provided in your return.

Next time you hear the word TDS, don’t worry and understand that TDS is also your part of the earning and no one is taking it away from you, they are just depositing it on your behalf to the government which you would have eventually done.

Share your problems about TDS here and also if some point has been missed regarding TDS feel free to comment below.

Note: This is not a legal advise and should only be considered as information provided from personal experience, for more information please consult a practising Lawyer or a Chartered Accountant.
  • Raju

    Do you deduct the TDS from users and also provide the Form16A?

    • worknhire

      Hi Raju,The TDS deduction liability in our case lies with the client and they will be depositing the money and issuing form 16A to the contractor.

  • priyanka33

    I am a freelance corporate trainer. I have recently started giving training on soft skills. When I raise the invoice, can the receiver of my service ( a corporate) deduct service tax on my invoice amount?. I don’t have a service tax regn. I have a PAN. In this case, what are the applicable taxes on my income which the corporate can cut at source?

    • worknhire

      No, service tax is something that you will be charging your client after getting a service tax registration. Service charge is payable by the person making the payment (in your case a company). The company can deduct TDS on your invoice and pay you the rest. The TDS as mentioned will be deposited on your behalf by the company and the company will issue a form 16 to you.

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  • Franklin

    Till what amount the TDS of 10.3% in applicable like is it teill 2lac or more?

    • malkeet Singh

      Hello Franklin,

      There is a limit for non deduction of TDS. Like for example if a professional is getting professional receipts from an Indian company having, then the Indian company will deduct tax at source if the payment is in Excess of Rs. 30,000/-(this limit for payments made in a particular year).
      There are different limits for different tax payments.

      Regards
      CA Malkeet Singh

  • Shradha Joshi

    I am a freelance trainer for individuals & kids. Since I left my job, I have recently started giving training on different things I know such as computers, hobby/craft stuff, recipes etc. However, I will not earn anything more than 30,000 a year with all that hassle. Still Do I need to apply for service tax? Someone told me service tax registration is needed if your annual income exceeds 2 Lakhs? Can u pls clarify.

    • Shradha Joshi

      No response yet ???

    • worknhire

      Service Tax registration is not required unless your earning exceeds 10 lakh per year.

  • Swati

    I am working as a freelancer on oDesk which is not an Indian company so there is no TDS on my income. How do I calculate the tax and is there any source of rebate for me?

  • Atul Kataria

    Hi, what deductions can I avail working as part time artist and drawing salary as a teacher. My art release expenses mostly including paying for exhibitions, brouchers and on art material. Also, would like to know teaching a 3 year contract, this does not contain any medical allowance or re-imursement, also phone expenses are not re-imbursed by employer. Can I avail these deductions under any IT section ?

  • Ritesh

    Hi, I’m an independent freelancer and I work for US clients directly and I
    receive payment through paypal. For 2015-16 if my total income is 16 lac then how much I need to pay taxes ? And what is the process of filing income tax as a freelancer and is there any way i can save money. Are there any saving plans applicable to freelancers ?

  • V

    Could you please clarify the limit for TDS: If I bill a client for 30,000/- is TDS applicable?
    Similarly, if I add service tax in the total payable, do I have to mention any Service Tax number to the company that is availing my service?

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  • Shaji MK

    I am an uneducated person to qualify as any kind of professional. But I am able to do some freelance work for some individuals and organisations on contract basis because of my self-learned English languages skills and proficiency in computers and internet. The payments given to me by this organisation is considered as professional income and they deduct TDS at the rate of 10%. Till last year I did not have any taxable income or had to pay only nominal tax. But this year (financial year 2015-16), I am getting a total of Rs. 974000 total (from different sources). I cannot afford to pay the full income tax liability for this amount because most (2/3rd) of this money has been paid (informal understanding ) for the work I am obliged to perform in the coming two years. I will have no income or negligible income for the next two years. So, how can I save my income of this year from tax liability of more than Rs. 1 lakh? Or, how can I minimise the tax liability maximally without locking the money in long-term investment in PPF accounts or fixed deposits (which I cannot afford because for the next two years I have to subsist mostly on what I have got this year)?