Table of Contents
The first time a corporate client pays ₹90,000 against your ₹1,00,000 invoice, it feels like a dispute. It usually isn't — it's TDS (Tax Deducted at Source), and that ₹10,000 hasn't vanished; it's been deposited with the government in your name, as prepaid tax you'll reconcile at filing. Freelancers who understand the mechanism price and cash-flow around it; those who don't chase "short payments" and abandon refunds. Here's the whole system.
Why Clients Deduct: Section 194J
Businesses paying professional or technical fees must deduct 10% TDS under Section 194J when payments to you exceed ₹30,000 in a financial year. "Professional services" covers most freelance work — design, photography for business clients, consulting, content, technical services. Some engagements fall under 194C (contractual work, 1–2%) — classification depends on the nature of the contract.
Key mechanics:
- Deduction applies to the fee, not the GST component, when GST is shown separately on the invoice — one more reason to itemize GST properly
- Individuals/families hiring you for a wedding don't deduct TDS — the obligation falls on businesses subject to audit. Your bridal clients pay full invoice; your corporate clients deduct.
- No PAN on file → 20% deduction. Always give clients your PAN.
Where Your Money Goes (and How to See It)
The client deposits the deducted amount with the government and files a TDS return crediting your PAN. You can see every credit in:
- Form 26AS — the tax-credit statement
- AIS/TIS — the annual information statement, increasingly the primary view
Check quarterly. Each entry should match an invoice of yours. Two failure modes to catch early: a client who deducted but never deposited/filed (your credit is missing — chase them; you paid this tax), and mismatched amounts from their clerical errors.
This reconciliation is trivial when your invoices are numbered and tracked in a system — match invoice → payment → 26AS line in minutes. It's misery when your records are a WhatsApp scroll. (Invoice tracking pays off here as much as at collection time.)
TDS Is Not Extra Tax — Do the Cash-Flow Math
At filing, your total tax liability is computed on your income (under 44ADA or regular taxation), and every rupee of TDS is credited against it:
Income tax due for the year: ₹1,40,000. TDS credited across clients: ₹1,10,000. You pay ₹30,000 (via advance tax/self-assessment). If TDS exceeded your liability, the difference comes back as a refund after filing.
The real cost of TDS is cash flow: 10% of B2B revenue reaches you 6–15 months late. Price it in mentally, and never treat TDS-heavy months as "lower earning" months — the money is yours, parked.
Lower or Nil Deduction: Form 13
If your actual tax liability is clearly below what 10% deductions will accumulate (common for 44ADA filers with mostly-B2B income), you can apply to the assessing officer for a lower/nil deduction certificate under Section 197 (Form 13, filed online). Granted certificates specify a reduced rate your clients then apply. Worth it when refunds are chronically large; the application requires income projections and past returns.
Invoicing and Communication Practices
- Expect the deduction in B2B quotes. ₹1,00,000 invoiced = ₹90,000 in-hand this quarter. Plan cash flow on in-hand.
- Note it on invoices to corporates: "TDS, if deducted, may be remitted against PAN ABCDE1234F" — signals professionalism and prevents payment-shortfall confusion on both sides.
- Collect Form 16A (quarterly TDS certificate) from significant deductors, or at least verify 26AS credits against your invoice register.
- Chase missing credits the same quarter. A client who deducted in April and hasn't filed by August needs a polite, persistent email — with your invoice number and payment date ready.
The Filing-Season Checklist
- Export your year's invoice and payment register
- Pull AIS/26AS; tick every TDS entry against an invoice
- Flag gaps: deducted-but-missing credits → chase deductor before filing
- Compute liability, subtract TDS credits, settle the balance (or claim the refund)
Freelancers with clean invoice records finish this in an afternoon. Keep every invoice, payment, and client in one system year-round — Brightdesk's free invoicing and payment tracking makes the register a click — and TDS becomes exactly what it's meant to be: tax you already paid, fully recovered.