When an Indian business pays a freelancer for professional services, it generally deducts tax at source at 10% once payments in the financial year cross ₹50,000. The deduction is not an extra tax: it is paid to the government against your PAN and you claim it as a credit when you file your return. The provisions were renumbered when the Income-tax Act, 2025 took effect on 1 April 2026.
Tax deducted at source is income tax collected in advance by the person making a payment. The client deducts a percentage of your fee, deposits it with the government against your PAN, and pays you the balance. The amount deducted appears in your tax credit statement.
It reduces the cash you receive now, not the fee you earned. When you file your return, the TDS is set off against your total tax, and any excess is refunded.
The rate on fees for professional services has been 10%, under the provision long known as Section 194J of the Income-tax Act, 1961. A lower rate of 2% applies to fees for technical services and a few other categories. From 1 April 2025 the threshold was raised to ₹50,000 in a financial year, from ₹30,000.
The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 and consolidated the TDS provisions under new section numbers. The rates and limits described here are the ones carried into it, but confirm the current section references before quoting them in a contract.
Companies, firms and LLPs deduct when the threshold is crossed. An individual or Hindu undivided family deducts under the professional-fees provision only if their own business turnover or professional receipts exceeded the audit-linked limits in the previous year, and not for payments made for personal purposes.
Individuals outside that rule who pay a contractor or professional more than ₹50 lakh in a year deduct under a separate provision at a lower rate. A client outside India does not deduct Indian TDS.
Normally no. Where the GST component is shown separately on the invoice, tax is deducted on the fee excluding GST. If the invoice shows a single lump sum, the client may deduct on the whole amount.
This is a good reason to show the tax separately on every invoice, as explained in the GST guide for freelancers.
The client must deduct at a higher rate, generally 20%, if you do not furnish a valid PAN. The credit can also fail to reach your account if the PAN is quoted wrongly.
Put your PAN on your contract and on every invoice, and check that the name matches your PAN records.
The client issues a TDS certificate, Form 16A, each quarter. Check it against your annual tax statement on the income tax portal to confirm the deduction was actually deposited against your PAN.
Claim the credit in your income tax return for that year. If a client deducted tax but it does not appear in your statement, ask them to correct their TDS return; you cannot claim credit for an amount that was never deposited.
State that the fee is subject to tax deduction at source as required by law, and that the client will provide the TDS certificate within the statutory time. This prevents a dispute over a “short” payment that is really a lawful deduction.
A deduction is not a reason for a client to pay late or hold back more than the law allows. If the unpaid balance goes beyond TDS, see what to do when a client is not paying.
Generally 10% on fees for professional services once payments from that client exceed ₹50,000 in the financial year, with 2% for fees for technical services.
Yes. TDS is adjusted against your total tax when you file your return, and any excess over your actual liability is refunded.
No, Indian TDS rules apply to payers covered by Indian tax law. A foreign client may apply its own country's withholding rules, which is a separate matter.
No. TDS is income tax deducted from your fee and credited to you. GST is a tax on the service that a registered freelancer charges on top of the fee.