TDS for Freelancers and Small Businesses: The Basics

Freelancers meet TDS the first time a client pays ₹90,000 against a ₹1,00,000 invoice and explains that "10% TDS is deducted". It feels like a loss. It is not — it is your income tax, paid early on your behalf. Understanding the mechanics makes filing straightforward instead of alarming.

What TDS is

Tax Deducted at Source is income tax that the payer withholds from certain payments and deposits with the government against your PAN. Later, when you file your return, the amount already deposited is credited against your final tax liability. Deduct too much and you receive a refund. Deduct too little and you pay the balance.

Our TDS calculator shows the standard rate and the threshold for each common section.

The sections freelancers meet most

• 194J — professional or technical fees. The most common for consultants, designers, developers and doctors. 10%, with a threshold of ₹30,000 per year per payer.
• 194J — technical services and call centres. 2% for specified technical services.
• 194C — contractors. 1% for individual or HUF payees, 2% for others, with a ₹30,000 single-payment and ₹1,00,000 annual threshold.
• 194H — commission or brokerage. 5%, above ₹15,000 a year.
• 194I — rent. 2% for plant and machinery, 10% for land, building or furniture, above ₹2,40,000 a year.
• 194A — interest other than on securities. 10%, above ₹10,000 a year for most payers.

Rates can change, so confirm the current figure before raising an invoice.

Why the threshold matters

Most thresholds apply to the total paid during the financial year, not to each invoice. A client who pays you ₹10,000 four times may not deduct anything early in the year and then start deducting once the annual total crosses ₹30,000. If you invoice several clients, each relationship has its own threshold.

Without a PAN, the rate goes up

If you have not furnished a valid PAN, tax is generally deducted at 20% or the applicable rate, whichever is higher, under section 206AA. Keeping your PAN on file with every client is worth real money. It also ensures the deduction appears correctly against your name in Form 26AS and the AIS.

Form 26AS and the AIS are your records

Every deduction against your PAN appears in Form 26AS and the Annual Information Statement. Before filing your return, total the TDS reported there and check it matches what your clients say they deducted.

Mismatches are the most common reason a refund gets held up. They usually come from a client deducting but not depositing, or reporting against the wrong PAN. Both are much easier to sort out in the months after the deduction than a year later when the return is processed.

What you get back

If your total income is below the taxable limit, or your TDS exceeds your actual liability, you can claim a refund when you file. That is the whole point: TDS is a prepayment, not a separate tax.

Freelancers should also plan for advance tax, because clients deduct only at the statutory rate and your slab may be higher. If your income is substantial, the shortfall between TDS and your actual liability has to be paid as advance tax during the year, or interest can apply.

A simple routine

• Keep your PAN on file with every client, and confirm the section and rate on the first invoice.
• Check Form 26AS quarterly rather than at the last minute.
• Keep your own record of invoice values and TDS deducted, client by client.
• Estimate your total liability and pay advance tax if TDS will not cover it.
• Reconcile before filing, so the credit is matched without a follow-up.

The mindset

Treat TDS as a small inconvenience rather than a cost. It is the tax you would have paid anyway, collected early, and it forces a useful discipline: keeping invoices, PAN details and client records in order. The freelancers who find tax filing easy are not doing anything clever — they are simply reconciling every quarter instead of every March.