Understanding TDS Rules for Freelancers in India

Getting paid as a freelancer in India isn’t always as straightforward as it should be. One month, your invoice is settled in full. Next, a client may pay less than expected, with no clear explanation. This leaves you wondering where your money went and how taxes fit into all of this. In most of the cases, the reason for such deductions is TDS (Tax Deducted at Source). 

Clients deduct a certain percentage from your payment upfront as TDS to collect tax at the source, and send it directly to the government on your behalf. And if you are a freelancer with foreign clients, remember that TDS is not applied to services exported from the country.

In this article, we’ll look at how to handle TDS on freelance income, when it applies, the key tax sections you should know, and how you can easily claim a refund if extra tax has been deducted.

Tax Deducted at Source (TDS) for freelancers is a mechanism in the Indian tax system in which your client deducts a certain percentage of tax from your payment before releasing it. This collected percentage is then deposited into the government by your client on your behalf. This system is promoted by the government to collect tax at the source of the income. All the companies from India that have a substantial Tax Deduction Account Number (TAN) can deduct TDS from your earnings. 

TAN is just like your PAN, but these are given by the government to the registered companies, giving them the authority to deduct TDS. So if at all your client company does not have a TAN, they can’t deduct TDS from your pay. And in such scenarios, you need to pay tax yourself through advance tax.

TDS on freelance income is applicable when your client is paying you more than the threshold limit of ₹50,000 in a financial year for your services under Section 194J. For contract work like content creation or design, TDS is applicable above ₹30,000 from one client or ₹1 lakh total across clients under Section 194C. TDS for freelancers in India applies only after these thresholds are crossed, so you need to track your payments regularly.

There are many freelance platforms like Upwork that automatically deduct TDS from payments to Indian freelancers once the income threshold is met, but only for domestic companies. And these platforms are mandated by Section 194 - O of the Indian Income Tax Act. Your foreign income is considered TDS-free as your overseas clients lack Indian tax obligations. 

Clients skip TDS if your earnings stay under ₹50,000 per year for professional services under Section 194J. For contract work, the TDS threshold is ₹30,000 from one client or ₹1 lakh total across all clients under Section 194C. These limits reset each financial year (April 1 to March 31). 

Here are some categories that have varying TDS thresholds that you can check from the Income Tax web portal:

• Professional services: This covers payments for medical, legal, architectural, engineering, accounting and consultancy services. 

• Technical services: Any managerial or consultancy service under technical provision of services. 

You need to share your PAN with your clients to avoid a steep 20% TDS rate. And even if your total freelance income falls below the basic exemption limit, clients must still deduct TDS once you cross the thresholds. You can claim it back when you file your ITR.

Your client deducts TDS at specific rates according to your service type and income tax section. So if you offer professional services like consulting, then 10% TDS is applicable. But if you provide technical services, then the TDS rate is 2%. Here’s a table to check TDS rates for freelancers: 

Note that the rates apply to TDS on freelance income after thresholds. And the clients deposit this percentage using TAN and issue Form 16A. You can verify the credits in Form 26AS to match deductions.

Foreign clients skip TDS entirely when paying Indian freelancers. This is because they operate outside India and are free from the legal duty to withhold Indian tax on service exports. That’s why TDS for freelancers from abroad stays at zero in most cases, letting you receive your full invoice amounts.

Still, you need to report this foreign freelance income in your ITR under the foreign income head, even without the deductions. And if your client has an Indian branch, then the TDS may be applicable, and you need to get it clarified in your contracts upfront. 

You can use cross-border payment collection platforms like Xflow for smooth INR conversions without TDS hassles. To ensure compliance and transparency in your international payments, you should track forex receipts for Form 26AS and follow the RBI rules.

You can avoid excess TDS by planning your paperwork and communicating clearly with your clients. Here are some simple steps, like sharing PAN, choosing the right section, and tracking income, to reduce heavy cuts from your profits:

• Always give your PAN to every client in writing (email or invoice) so they do not deduct 20% TDS by default. 

• Also mention the correct section on your invoice (for example, Section 194J for professional services or 194C for contracts) so the client does not use a higher or wrong TDS rate.

• Track how much each client pays you during the financial year. If their payments stay below the TDS threshold (like below ₹50,000 per client under some sections), remind them that TDS is not applicable yet and share the relevant Income Tax section to support the fact.

To claim your TDS refund, you can start by downloading Form 26AS from the income tax e-filing portal to see all TDS credits from your clients. You can then proceed to file your ITR-4 or ITR-3 by July 31 using these credits to offset your tax liability. This is how your excess TDS for freelancers turns into a refund and gets deposited into your bank account within a month or two.

Remember to link your PAN with Aadhaar and bank account for fast processing, and if the credits mismatch your invoices, you need to ask your clients to fix their TDS returns. You can also opt for a lower taxable income, if you are eligible, and boost refunds using presumptive taxation under Section 44ADA. Also, save all Form 16A certificates as proof during assessment as this helps you recover most TDS on freelance income smoothly.  

Here are some examples to help you understand how TDS on freelance income is calculated:

Example 1: TDS on professional services rendered (Section 194J)

Let’s assume a case of Mr. Rahul, who has provided consultancy services for a company in the financial year (F.Y.) 2025–26. The first payment is of ₹60,000 in May 2025, and the second payment is of ₹30,000 in January 2026. 

As the first payment exceeds the threshold limit of ₹50,000, then TDS of ₹6,000 will be deducted when the payment is released. Also, we see that the annual limit is crossed, so TDS will also be deducted on subsequent payments, like the ₹30,000 paid in the month of January. This means an additional ₹3,000 will be deducted from the second payment.

Example 2: Contract work (Section 194C)

Consider a scenario in which Ms.Tara, a content writer, is hired by a digital agency in India. The total payments to Ms.Tara in the financial year are ₹2,00,00 across multiple contracts.

So, as per Section 194C of the Income Tax Act, content writing falls under contract work for non-technical services. The threshold is Rs. 30,000 per client or ₹1,00,000 total across clients. Since the payments in this scenario exceed the threshold of ₹1,00,000 total, the agency will deduct TDS of 1% on the excess ₹1,00,000. 

The most common TDS problems freelancers face are missing Form 16A, wrong rate deductions, and foreign income confusion. Here are some quick fixes to avoid them.

• Delay or missing Form 16A: This issue happens when the client forgets to issue certificates, blocking ITR claims. You should always check Form 26AS directly and follow up via email.

• TDS not credited in Form 26AS: This mismatch can happen due to wrong PAN or late deposits by your clients. To fix this, you need to ask your client to correct their TDS returns and also perform quarterly verification.  

• Excess or wrong rate deductions: If you don’t provide your PAN, your clients can skip thresholds or charge 20% without PAN. Keep in mind to share PAN upfront and specify sections on invoices.

• Foreign income confusion: Remember that non-TDS forex needs ITR reporting too. Track all receipts and report them under foreign income.

For freelancers with foreign clients, Xflow offers a smart way to get foreign payments in INR while ensuring compliance with all Indian tax norms. Xflow also guarantees settlements within 24 hours and at zero forex markup.

Compared to platforms like Xflow deliver lower fees and greater convenience. Xflow is designed exclusively for Indian businesses and freelancers with clients overseas. You can create your own invoice or upload one and share it directly with your clients from the Xflow dashboard. Payments land straight into your bank account, or you can withdraw them from the Xflow receiving account.

Here are some helpful features offered by Xflow:

• Multi-currency support allows you to earn in currencies like USD, EUR, GBP, and more. These earnings are then converted into INR at real-time rates.

• Real-time tracking powers your Xflow dashboard so that you can monitor payment statuses, client views and conversions live.

• Automation is leveraged for financial workflows like compliance (eFIRA certificates), invoice processing and APIs are also offered for seamless integration.

• Supports integration with accounting softwares like Zoho books for ease in bookkeeping.

Xflow is a good choice for freelancers who want to collect foreign payments in a smooth and compliant way. You can use Xflow: 

• If you are a freelancer or an independent professional with global clients.

• If you are a solopreneur or an agency with clients across the globe, you need proper INR conversions at lower fees.

• If you are an SMB or an IT service providing startup that wants to handle high-volume payments with no limits or hidden charges.

• If you are an Indian exporter who needs seamless cross-border payments collection with RBI-approved compliance and e-FIRA automation.

TDS for freelancers can seem confusing at first. But you can handle it easily when you know the rates, limits, and the refund process. All you need to do is keep clear records of invoices, check Form 26AS regularly, and file your ITR on time to claim any TDS refunds due. And for international clients, you need to select the right payment solution carefully as it reduces fees, improves cash flow, and simplifies compliance.

For receiving fast freelance earnings at zero FX markup, visit Xflow’s site today!