Freelancers will probably not like to hear this, but deducting tax at source on the payments you make is something that you need to be aware about. Yes, it’s another headache you need to deal with. But it’s not as bad as you think. Allow us to break it down for you.
When you receive payments for your work, you probably see the TDS deducted in some cases. But what most freelancers don’t know is that you need to deduct TDS as well if you make certain amounts of payment. Let’s look an example to understand further.
Shikha is a graphic designer who works for different clients on a freelance basis. She is not employed with any one company, but works for different companies and firms on a project-to-project basis. Shikha does designing for different advertisement and promotional material like brochures, leaflets, print ads, packaging, etc. Whenever she gets paid for her work upon completion of a project, her clients release the payment after deduction of tax at source. What Shikha doesn’t know is that she is supposed to do the same.
Since most freelancers have a name for their business and open a current account in that name, they are treated as small business owners from a taxation perspective. The same is true for Shikha. She doesn’t have employees so she doesn’t need to worry about TDS on salaries, but she does hire professionals from time to time and makes payments to them. It is on these payments that she needs to deduct TDS. These professionals can be photographers, copywriters, printers, couriers, etc.
When to deduct TDS
The TDS norms for freelancers or small business owners stipulate that single transaction payments of over Rs 30,000 to professionals are subject to TDS at the rate of 10%. Even freelancers who make such payments are mandated by law to deduct tax at source and deposit the same with the government. But this is subject to one caveat–freelancers need to deduct TDS only when they have been audited in the previous financial year. An audit has to be done if their annual income crosses Rs 25 lakh. If they haven’t crossed this income threshold, then their audit would not have been done and they wouldn’t need to deduct TDS even if they make payments beyond Rs 30,000.
All of this may be overwhelming for freelancers who are generally more focused on trying to get work, generating business and following up with clients to release payments. But the good news here is that freelancers don’t need to worry too much about taxation. We, at clearTax, have made it extremely easy for freelancers to not only e-file their income tax but file their TDS returns as well.
Visit our Help Center to learn more about filing TDS returns.
ClearTax provides taxation help for freelancers and small business owners who fall into the following professions: