Are you someone who is providing freelance or professional services? If yes, then this article is for you. Do you know that TDS (Tax Deducted at Source) is applicable in the case of freelancers and professionals? It means that your clients are obligated to deduct tax while paying you for your services as per the Income Tax Act. Let’s discuss the TDS applicability on freelance and professional services in detail for your better understanding.
Firstly, understanding the term “TDS” is very important to know more about its applicability to freelancers and professionals. So, let’s discuss what is TDS (Tax Deducted at Source)?
The Indian government has obligated the payers to deduct the tax at the pay source itself i.e., at the time of making payment as per the Income Tax Act. This obligated act of deducting tax is called TDS i.e, Tax Deducted at Source. Although, TDS is deducted only if the amount is taxable in the hands of the receiver or payee.
When is TDS applicable to freelancers or professionals?
In the case of freelancers or professionals, Section 194J of the Income Tax Rate is levied according to which if the services are rendered amounting to more than Rupees 30,000 in a financial year to a client then the TDS shall be deducted at the rate of 10% of the aggregate payment by them at the time of making payment.
Let’s understand the above provision by way of the following illustration.
Suppose, if you have provided services to a client and raised an invoice for the payment of Rupees 50,000. Then, TDS at the rate of 10% of the aggregate payment shall be deducted by such a client at the time of making payment. It means,
10% of Rupees 50,000 = Rupees 5,000 shall be deducted
and, the balance payment of Rupees 45,000 shall be made to you by your client.
Who Can Deduct TDS?
Any client to whom you are rendering your services as a freelancer or professional is liable to deduct TDS at the time of making payment to you if the value of such services exceeds the specified amount of Rupees 30,000. Although to deduct TDS, clients must have a substantial Tax Deduction Account Number (TAN).
Please note – In case your client is an Individual or HUF, then they are required to deduct TDS only if their turnover is more than 1 crore (in case they are running a business) or their gross receipts are more than 50 lakhs (in case they have a profession).
Will any proof of TDS deduction be provided by the client?
Yes, a “Form 16A” certificate shall be provided by your client, at the end of the quarter in which TDS is deducted, which will be treated as proof that tax is deducted at the source by them and deposited to the government as well.
What if the client fails to deposit tax deducted to the government?
A client who has deducted tax from your remuneration mandatorily needs to deposit the TDS is deducted to the government, if there is any failure to do so penalty will be levied on them. You don’t have to pay any penalty in this scenario but make sure to deposit the tax on your income while filing the return.
Can you claim a refund of TDS deducted while filing a return?
Yes, in case you don’t fall under the tax slab rate or the deducted TDS exceeds the amount of tax you are liable to pay then while filing a return you can claim the refund.
Let’s understand the above scenario with the following illustration,
Suppose, you have made an aggregate earning of Rupees 2,30,000 as a freelancer or professional during the financial year 2021-2022 from the various clients. Each one of those clients has deducted TDS at the rate of 10% while making payment to you in accordance with Income Tax rules.
So, the aggregate amount of TDS deducted on your total earring shall be Rupees 23,000 (10% of 2,30,000). Now, if you don’t have any other source of income you fall under the exempted tax bracket of Rupees 2.5 lakhs. In this case, you can claim the refund of TDS deducted from the government while filing your return.
Hope, your doubts related to TDS applicability on freelance or professional services are resolved. In case you need help in filing your return or have any queries, please feel free to reach out to us. We are always happy to help small entrepreneurs and solopreneurs.
