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A guide to TDS for freelancers: Everything you need to know

Tax Deducted at Source (TDS) is the amount of money deducted as tax by the payer before making a payment for any service. TDS is a part of your tax obligation to the government on your income. The only difference is that it is deducted before you receive payment. 

Each time an entity makes a payment pays fees to professionals that exceed ₹30,000 per transaction or in total during a financial year, TDS applies at the rate of 10%. The deducted tax must be deposited with the government. 

For instance, let us assume that you are a freelancer and have invoiced a client for ₹40,000. The client will subtract ₹4,000 (10% of your invoiced amount) and pay you the remainder of ₹36,000. The client is responsible for depositing the deducted amount with the government as Tax Deducted at Source. 

Once the quarter ends, the client will provide you with Form 16A, which will state that ₹4,000 was deducted as tax from your payment. It will likewise have different detailed elements like the receipt number for the payment, the date when the sum was deposited with the government, and so on.

The freelancer can use the online facility provided by TRACES to generated form 26AS. This form lists all the TDS deductions that have been made on their income through the year. This information can be used when filing returns to ensure that you are not paying taxes on your income twice. It must be remembered that this system is linked to one’s PAN, so it is essential that the client has your PAN details and has linked the TDS to your PAN.  

If your profit for the entire financial year doesn’t fall under the tax bracket, here’s what you can do: 

  • Let’s say you made a total earning of ₹2.2 lakh from different customers and every one of them deducted TDS from your earnings. The total tax deducted would total ₹22,000 (10% of 2.2 lakh). 
  • Let’s additionally assume that you don’t have any other source of income. Then your aggregate salary for the current financial year hasn’t crossed the tax slab of 2.5 lakh (which is tax-exempted). As a result, you won’t have to pay any taxes to the government. So what happens to the deducted tax at this point? In this case, you would need to file for a refund from the Income Tax Department. 
  • Since the tax was deducted at the source without taking into account how much your total income for the year would be, you would qualify for a tax refund. 
  • In this scenario, you will be able to recover the entire amount of ₹22,000 in the form of tax refund.
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