You agree a fee of ₹1,00,000 with a client, send the invoice, and receive ₹90,000. The missing ₹10,000 is TDS, and your client did nothing wrong. The shock comes from a contract that said "₹1,00,000" and never said who carries the tax. Most freelance contracts are silent on this, and the silence is expensive when the client is abroad, when GST is involved, or when the client promised you a net amount.
A tax clause tells both sides whether the fee is before or after tax, who adds GST, and what happens if tax is withheld. By default, TDS is your own income tax paid in advance, GST is added on top of the fee, and a "net of tax" or gross-up arrangement exists only if the contract says the client bears the tax. This post covers the clauses worth writing for Indian clients, then foreign clients, then how enforceable they are.
For an Indian client, write the fee as gross and let TDS be your credit
When a client deducts TDS, you are not paying an extra cost. The deducted amount is credited against your income tax, appears in Form 26AS and AIS, and you claim it when you file. For professional fees, Section 194J sets the rate at 10 percent, with 2 percent for technical services, and TDS applies once payments of that kind from one client exceed ₹50,000 in a year. Many individual clients and small businesses do not deduct TDS at all, so check what yours does. Contract-style work can instead fall under Section 194C at 1 percent for individual and HUF payees and 2 percent for others. The guide on which TDS section applies to freelancers explains how to avoid the wrong one. The Income-tax Act 2025 replaced the 1961 Act from 1 April 2026 and renumbered the TDS sections, so this post uses the section names still in common use, and you should confirm current numbers with your CA or the portal.
The clause to write is short: "The fee is ₹1,00,000, exclusive of GST. The client may deduct tax at source as required by law and shall provide a TDS certificate." The certificate part matters, because the credit depends on it appearing in your records, as the guide on a missing Form 16A shows.
A gross-up clause makes the client bear the tax, but only if you write it
Section 195A of the Income-tax Act covers income payable net of tax. Where an agreement says the payer will bear the tax, the income is increased for deduction purposes to the amount that, after TDS at the rates in force, leaves the agreed net figure. The arithmetic is gross equals net multiplied by 100 and divided by 100 minus the rate. At 10 percent, a net of ₹90,000 needs a gross of ₹1,00,000, and a net of ₹1,00,000 needs about ₹1,11,111.
By its wording the section covers income under the earlier TDS sections and is not limited to payments abroad, but it works only when the contract says the payer bears the tax. A client has no duty to agree. Ask for it on large projects, and write it plainly: "The client bears all tax deducted at source, and shall pay such additional amount that the freelancer receives the agreed fee in full." Many clients will refuse, so decide in advance whether you would walk away or quote higher.
GST goes on top of the fee, and TDS is taken on the fee without it
If you are registered, the clause should read "plus applicable GST". The taxable value is the fee excluding GST, so no gross-up is needed for GST: the client pays it on top and you remit it. CBDT Circular 23/2017 says that where GST is indicated separately in the contract between payer and payee, the client deducts TDS on the amount excluding GST, so show GST in the contract first and as its own line on every invoice. The invoice side is covered in the guide on GST invoices for freelancers.
Also state whether the fee is inclusive or exclusive of GST. If a contract is vague and the client later argues the fee included GST, the price you can charge shrinks. Write "exclusive of GST" and move on.
A foreign client usually withholds nothing for work you do in India
Many freelancers fear that a US client will cut 30 percent. The IRS taxes personal service income according to where the work is performed, so work done wholly in India is foreign-source income, and a US payer generally has no US tax to withhold. The payer may still ask for Form W-8BEN, which a foreign individual gives to the payer, not to the IRS, to certify foreign status and claim treaty benefits. It stays valid until the end of the third calendar year after the year you sign it, according to the IRS instructions for Form W-8BEN, and you should update it within 30 days of a change.
If you perform services inside the US, the income is US-source and withholding can apply unless an exemption or a treaty covers it. Under Article 15 of the India-US tax treaty, an Indian resident individual's professional service income is taxable only in India unless there is a fixed base in the US, in which case only income attributable to it can be taxed there, or a stay of 90 days or more in the year. The IRS rules on source of personal service income explain the location test. Add a clause such as: "The freelancer performs the services in India. The client shall not withhold tax on the fee, and shall accept a W-8BEN on request."
If foreign tax is withheld, claim credit in India with Form 67
If a foreign payer does withhold tax from income that is also taxable in India, you can claim credit for it against your Indian tax under Section 90 or 91 and Rule 128. The credit is the lower of the Indian tax on that income and the foreign tax paid, and you support it with Form 67 and a certificate or statement of the foreign tax. File Form 67 before you file the return, since the return asks for its acknowledgement number. Rule 128 as amended in 2022 allows it up to the end of the assessment year, but do not rely on late filing. For income from 1 April 2026, the Income-tax Rules 2026 reportedly replace Form 67 with Form 44, so check which form your year uses. For income from 1 April 2026, the Income-tax Rules 2026 reportedly replace Form 67 with Form 44, so check which form your year uses. A clause that the client will supply a withholding statement saves you chasing it later. For the payment side, see the guide on invoicing international clients.
A tax clause binds the two of you, not the tax department
Parties can agree who bears the cost of tax between themselves, but the tax authority is not bound by that agreement. The deductor still deducts as the law requires, and you remain liable for your own tax. A clause is a basis to recover money from the client, so it is only as good as your ability to enforce it. This sits inside the wider contract, covered in the freelance contract guide for India, and the payment terms you pair it with are in the guide on payment terms.
Keep the contract and the invoices together
Rinto keeps a linked view of a client's projects, invoices and contracts, so the clause you agreed sits next to the invoice that follows it and the payment you received. E-signature contracts are available on paid plans. Rinto does not calculate your tax or file anything for you, so ask a CA to confirm figures for your case. This post is general information, not tax advice.
Frequently Asked Questions
Who bears TDS in a freelance contract in India?
By default the freelancer bears it, in the sense that the client deducts TDS from the fee and pays the rest. That deduction is your own income tax paid in advance, credited in Form 26AS and AIS and claimed when you file your return. If you want the client to bear the tax, so that you receive the agreed fee in full, the contract must say so in a gross-up clause under which the payer pays an additional amount. The client has no duty to agree, so raise it before you sign, not after the invoice.
What is a gross-up clause and how is it calculated?
A gross-up clause says the client bears the tax and pays enough extra that the freelancer receives the agreed net fee. Section 195A of the Income-tax Act deals with income payable net of tax. The formula is net multiplied by 100 and divided by 100 minus the TDS rate. At 10 percent, a net of ₹90,000 needs a gross of ₹1,00,000, and a net of ₹1,00,000 needs about ₹1,11,111. It works only if the contract says so, and many clients refuse, so decide whether to quote a higher fee instead.
Is TDS deducted on the GST portion of my invoice?
Not if GST is shown separately. CBDT Circular 23/2017 says that where GST on services is indicated separately in the contract, TDS is deducted on the amount excluding GST. So write the fee in your contract as exclusive of GST, and show GST as its own line on the invoice. If the contract does not show GST separately, the client may deduct TDS on the whole amount, which costs you cash flow until you claim the credit. Ask your CA if your case is unusual, such as a composite supply.
Does a US client withhold tax from an Indian freelancer?
Generally not, when you do the work in India. The IRS treats personal service income as sourced where the work is performed, so work done wholly in India is foreign-source and a US payer generally has no US tax to withhold. The client may still ask for Form W-8BEN for its records. If you perform services inside the US, the income is US-source and withholding can apply unless an exemption or the India-US treaty covers it. Put the place of performance and a W-8BEN clause in the contract.
How do I claim credit in India for tax withheld abroad?
Claim a foreign tax credit under Section 90 or 91 and Rule 128 by filing Form 67 with your return, along with a certificate or statement of the foreign tax deducted. The credit is the lower of the Indian tax on that income and the foreign tax paid, and foreign tax above the treaty rate is ignored. File Form 67 before the return, which asks for its acknowledgement number, and do not rely on filing late under the 2022 amendment. For income from 1 April 2026, the new rules reportedly use Form 44, so check which form applies. For income from 1 April 2026, the new rules reportedly use Form 44, so check which form applies. Ask the foreign payer for the withholding statement early, and ask a CA to confirm the figures.