Freelancing and professional work are on the rise in India, giving individuals the freedom to choose clients and projects. But with this flexibility comes the responsibility of handling taxes properly. One key aspect that often confuses freelancers is Tax Deducted at Source (TDS). Understanding the TDS Rules for Freelancers and Professionals ensures compliance and helps avoid loss of income due to excess deductions.
When Does TDS Apply?
TDS is deducted when a client makes a payment to a freelancer or professional for services. Under the Income Tax Act, different sections govern the applicability based on the type of service:
Section 194J: This applies to professional services (such as consultants, designers, writers, IT professionals, doctors, and lawyers) and generally attracts a 10% TDS. For payments made for technical services, the rate is 2%.
TDS Threshold (Updated for FY 2025–26): TDS under Section 194J is only applicable if the total annual payment to a single professional exceeds ₹50,000 in a financial year.
Section 194C: This covers contractual work, not professional services. The TDS rate is 1% or 2%, depending on whether the payee is an individual/HUF or another entity.
TDS Threshold: TDS is applicable only if the annual payment exceeds ₹30,000 in a single payment or ₹1,00,000 in aggregate from a single client in a financial year.
TDS Rates for Freelancers and Professionals
The standard TDS rate is 10% on professional fees (u/s 194J). However:
If the freelancer has not provided a valid PAN, TDS is deducted at 20%.
For contracts covered under Section 194C, rates are lower (1–2%).
How to Claim TDS Credit
Even though clients deduct TDS, this does not mean it’s extra tax. It is adjusted against your final income tax liability.
TDS deducted by clients is reflected in Form 26AS and the Annual Information Statement (AIS).
While filing your Income Tax Return (ITR), you can claim this TDS amount as credit.
If excess TDS has been deducted, you can claim a refund from the Income Tax Department.
Common Issues with TDS
Freelancers often face challenges such as:
- Mismatch in TDS records between Form 26AS and client statements.
- Excess deduction when advance tax or deductions are not considered.
- Clients not filing TDS returns on time, causing delays in reflecting credit.
- Keeping proper track of invoices, payments, and TDS certificates (Form 16A) is crucial to avoid these issues.
Why Bookkeeping Matters
TDS management is closely linked with proper bookkeeping. Without organized records of invoices, receipts, and tax deductions, freelancers may miss out on claiming rightful TDS credits.
To understand how accurate record-keeping can simplify your tax life, don’t miss our next blog: Importance of Proper Bookkeeping for Startups and Freelancers.
Conclusion
Knowing the TDS Rules for Freelancers and Professionals helps you stay compliant and ensures you don’t lose money to unnecessary deductions. By keeping records updated and reconciling TDS with Form 26AS, freelancers can manage taxes smoothly.
For expert guidance on tax filing, TDS management, and bookkeeping, contact Team Taxperts – your trusted Tax consultant in kochi.