A client's accounts team writes back: "We will pay ₹90,000 against your ₹1,00,000 invoice after TDS." Or the reverse, a founder who has never hired a freelancer asks, "Do I have to deduct anything?" Freelancers usually know their own side of TDS. Few know what the client must do, and that is what you need when you explain a deduction or chase a missing certificate.
A client who is a company or a firm must deduct TDS when paying a freelancer above the yearly threshold: 10 percent for professional services and 2 percent for technical services under Section 194J, or 1 or 2 percent for contract work under Section 194C. An individual or HUF client need not deduct unless their business turnover or professional receipts in the previous year were above the tax-audit limits in Section 44AB. This post sets out who deducts, at what rate, what the client must deposit and file, and what to send them.
Companies and firms deduct, and most individuals do not
Under Sections 194C and 194J, an individual or HUF must deduct only if their business turnover or professional receipts in the previous year were above the monetary limits in Section 44AB, and payments for personal purposes are outside both sections. Companies and firms have no such exemption. Those limits have changed over the years, so ask your client whether they crossed the tax-audit limits last year. A different section, 194M, can apply to an individual not under audit once payments to one person pass ₹50 lakh in a year, so ask a CA if your client is that size.
This is why some clients deduct and some do not, even for identical work. If your client is an individual, ask whether they crossed the tax-audit limits last year before assuming either way.
The rate depends on whether the work is professional, technical or a contract
Section 194J applies a 10 percent rate to professional services and 2 percent to technical services that are not professional services, and the threshold is ₹50,000 a year from FY 2025-26, shown on the Income Tax Department's page for Section 393 of the Income-tax Act 2025. Section 194C applies 1 percent where the payee is an individual or HUF and 2 percent for others, once a single payment passes ₹30,000 or the year's payments pass ₹1,00,000. Where work sits between professional and technical, or between professional and contract, the classification is a judgment call, so agree it in writing before the first invoice. The guide on which TDS section applies to freelancers covers the split.
If you have not given your PAN, the client must deduct at 20 percent or the normal rate, whichever is higher. Put your PAN on your first invoice.
GST is outside the TDS base when it is shown separately
CBDT Circular 23/2017 says that where GST on a service is shown separately in the contract or invoice, TDS is deducted on the amount excluding GST. Show GST as its own line, so ₹1,00,000 plus ₹18,000 GST means TDS on ₹1,00,000. Ask the client to confirm this before you send the invoice. The guide on tax clauses in a freelance contract covers the wording.
The client must deposit the tax, file a quarterly return and issue a certificate
A client who deducts TDS needs a TAN, deposits the tax with the government, and files a quarterly TDS return for payments to residents, Form 26Q. Returns are due on 31 July, 31 October, 31 January and 31 May for the four quarters. Tax deducted in March is due by 30 April. The client then issues you a TDS certificate, issued shortly after the quarterly return is due. Form 16A is the 1961 Act name, and the Income-tax Act 2025 calls the non-salary certificate Form 131.
Your tax credit depends on this chain working. If the client deducts but does not deposit or file, you lose the credit until it is fixed, a problem covered in the guide to a TDS credit that does not match 26AS, and the guide to a missing Form 16A explains the certificate.
Late filing and late payment cost the client money
Under Section 234E, a late quarterly return carries a fee of ₹200 a day until it is filed, capped at the TDS amount. Interest under Section 201(1A) runs at 1 percent a month for late deduction and 1.5 percent a month for late deposit, with part of a month counting as a full month. These are costs the client bears, so mention them if an accounts team is slow, and be polite about it.
Which rules apply this year
The Income-tax Act 2025 applies from 1 April 2026, and where the earlier of credit or payment falls on or after that date, the new law applies, with non-salary TDS consolidated in Section 393. Payments up to 31 March 2026 stay under the old law. The sections, forms and dates quoted here are the 1961 Act ones clients still use. The due dates and the ₹200 fee carry over, but new form and section numbers apply for 2026-27, so check them with a CA. The guide to PF and ESI when hiring covers a different set of obligations if you employ people, and hiring a subcontractor covers the case where you are the client.
What to send your client
Send a short note with your invoice: your PAN, the section you believe applies, GST shown separately, and a request to share the TDS certificate each quarter. Rinto lets you mark invoices paid and always know who owes you what. Rinto does not file TDS returns or advise clients on deduction. This post is general information, not tax advice.
Frequently Asked Questions
Does a company have to deduct TDS when paying a freelancer?
Yes, once payments cross the yearly threshold. Under Section 194J the rate is 10 percent for professional services and 2 percent for technical services, with a threshold of ₹50,000 a year from FY 2025-26. Under Section 194C it is 1 percent where the payee is an individual or HUF and 2 percent for others. Companies and firms have no exemption. Ask the client in writing which section they will apply, and keep the deduction visible on your invoice. Put the section you expect on your first invoice so any disagreement surfaces early.
Does an individual client have to deduct TDS on freelancer payments?
Only if the individual's or HUF's business turnover or professional receipts in the previous year were above the Section 44AB tax-audit limits, and payments for personal purposes are outside Sections 194C and 194J. Another section, 194M, can apply to an individual who is not under audit once payments to one person pass ₹50 lakh in a year. Ask your client whether they crossed those limits last year, and agree the answer in writing. Put that confirmation in an email so the accounts team has it on record.
Is TDS deducted on the GST amount in my invoice?
Not when GST is shown separately. CBDT Circular 23/2017 says that where GST on a service is shown separately in the contract or invoice, TDS is deducted on the amount excluding GST. So an invoice of ₹1,00,000 plus ₹18,000 GST has TDS on ₹1,00,000. Show GST as its own line and ask the accounts team to confirm the base before payment, so you do not discover a larger deduction later. That way the client's accounts team and your own records start from the same figure.
What happens if my client does not deposit the TDS?
Your credit may not show in Form 26AS, and you cannot claim it until the client fixes it. The client also faces a fee of ₹200 a day under Section 234E for a late quarterly return, capped at the TDS amount, and interest of 1 percent a month for late deduction and 1.5 percent for late deposit. Ask for the challan details and the quarterly return acknowledgement, and follow the steps in the guide to a TDS credit that does not match 26AS.
What TDS certificate should I get from my client?
Form 16A under the 1961 Act, issued shortly after the quarterly TDS return is due. The Income-tax Act 2025, in force from 1 April 2026, calls the non-salary TDS certificate Form 131, so the name depends on the year of payment. Your credit comes from Form 26AS, not from the certificate, so check 26AS each quarter and compare it with the certificate. If it is missing, ask the client to issue it from the TRACES portal. Compare the certificate figures with your Form 26AS entries each quarter.