In this article, Ashwini Gehlot discusses Are Freelancers Subject to TDS Deductions?
What Is Freelancer?
A freelancer is somebody who doesn’t work for one organization full-time, however, he is employed by various organizations for specific occupations. For instance, a magazine or site will have a core group of editors who procure freelance to compose articles, or a TV creation team may contract freelance cameramen to take a shot at one series of programs.
What Are The Advantages Of Freelancing?
Choose your work
Being a freelancer implies you don’t have a manager guiding you so you can state “no” to jobs you don’t need. You may likewise get the opportunity to work at home for particular projects. For whatever length of time that your work is conveyed to the deadline, most customers wouldn’t mind when and how you do it – making freelancer a decent alternative for individuals who would prefer not to work normal office hours.
A freelancer can arrange your own rates with the organizations who procure you. Companies are regularly arranged to pay freelancer a better rate than their own staff since they don’t need to pay for things like sick leave as a component of the agreement. The more experience you have then the more money you can ask for.
Choose and pick customers
While initially, you may take any customer that will hire you, as you develop, you can pick not to take troublesome customers. You can even fire them.
Do the work the way you see fit
While you have to deliver what the customer asks, how the work is done is dependent upon you.
What Are The Disadvantages Of Freelancing?
There are a number of freelancers out there and landing your initial couple of positions can be hard. Simply being great at what you do isn’t sufficient – you have to network, make contacts and market yourself on the grounds that nobody will contract you on the off chance that they don’t know you’re there! The workload can be erratic – some of the time you may be working throughout the night to meet three deadlines in one week, while even the best freelancers have months where they get no work at all.
Managing your money
Not only will you not get a consistent pay cheque for every month, you’ll additionally need to make all the tax and National Insurance arrangements bosses/employers would typically do for you. You have to register yourself as ‘independently employed’ with Inland Revenue, who can give you some counseling. You’ll additionally need to make sure to keep some cash aside for times when you’re sick or there’s no work – and keeping in mind that it may be awesome to have a holiday whenever you need, but remember that nobody will pay you for it!
Tax Deducted at Source
TDS regular shortening for Tax Deducted at Source is the reasoning of duty from the pay source itself, at the time of earning. The legislature has embraced the technique for TDS to simplify the tax assessment system and to guarantee that the payer and beneficiary are accounting the same while filing their income tax returns. TDS in basic terms is a part of your tax obligation kept to the government by the payer right at the source.
Who Can Deduct TDS From My Earning?
Company/individual from India having a substantial Tax Deduction Account Number (TAN) can just deduct TDS from your earning. TAN much like PAN is a record number given by the government to enlisted/registered entities making it obligatory for them to deduct TDS. Unless your customer has a TAN they are not qualified to deduct any TDS. Since people/company from outside of India don’t have this they won’t be deducting TDS from your income. So also on the off chance that you are working for a customer who is an individual and doesn’t have a TAN number (most people won’t be having a TAN unless they are maintaining a business on their name), no TDS is applicable. In such cases keeping Tax through Advance Tax (for some situation) become your liability.
What Happens After TDS Is Deducted?
The Individual/company who has deducted the Tax from your earning needs to pay the TDS to the government on your behalf. On the off chance that they neglect to do so, fines are collected from them (you are not in charge of this at all). When they have paid the TDS to the government they will be giving you a certificate called Form 16A which demonstrates that Tax was deducted from your earning on your behalf. Your customer can give this to you after the end of the quarter when the payment was made.
How Much Is The TDS For A Freelancer?
If the case of a freelancer the TDS is 10% of the aggregate payment sum. So let’s say you have invoiced a customer for Rs 50,000. The customer will be making an instalment of Rs 45,000 to you and deducting Rs 5,000 (10%) and depositing it to the government. Once the quarter closes the customer will be giving you a Form 16A which will say the Rs 5,000 deducted from your payment. It will likewise have different subtle elements like receipt number by which payment was made to government, the date when the sum was deposited to government and so on.
TDS And Refunds
Presently since we are clear on the point that customers need to deduct TDS and it is obligatory for them (for entities having a TAN), let’s think of the situation where your profit for the whole monetary year doesn’t fall under tax bracket. So let’s say you made an aggregate earning of 1.8 lakh from various customers and every one of them deducted TDS from your earning which would add up to an aggregate TDS of Rs 18,000 (10% of 1.8 lakh). Let’s additionally think of you as didn’t have some other source of income. Your aggregate salary for the current financial year hasn’t crossed the tax slab of 2.5 lakh (which is tax exempt) and consequently, you don’t have to pay any duties to the administration, what happens at that point? Well, you assert refund from the Income Tax Department. Since TDS was deducted at source without knowing how much your aggregate income for the year would be, you can end up noticeably qualified for refunds in case the aggregate TDS surpasses the amount of your tax liability. In the case above when you file your IT return you will be asking for a refund of Rs 18,000 which will be prepared by the IT division after checking points of interest (details) provided in your return.
Next time you hear the word TDS, don’t stress and comprehend that TDS is likewise your part of the earning and nobody is taking it away from you, they are simply depositing it for your sake to the government which you would have in the long run done.
When To Deduct TDS
The TDS rules for small entrepreneurs or freelancers states that single transaction payment which surpasses Rs 30,000 to experts are liable to TDS at the rate of 10%. Indeed, even freelancer who makes such installments are ordered by law to deduct tax at source and deposit the same with the administration. In any case, this is liable to one caveat–freelancers need to deduct TDS just when they have been examined in the past financial year. A review must be done if their yearly pay crosses Rs 25 lakh. In case, they haven’t crossed this income threshold, at that point, their audit would not have been done and they wouldn’t have to deduct TDS regardless of the possibility that they make payment beyond Rs 30,000.
Legal Provisions And Applicability Of TDS On Freelancers
Section 194J Of Income Tax Act, 1961-
According to Section 194J of Income Tax Act of 1961, an individual ought to deduct TDS at the rate of 10% when the following payment is made to an occupant, in a financial year (higher than Rs.30,000):
- Amount charged as professional services fee or
- Non-compete fee according to the Income Tax Act of Section 28(VA) or
- Amount charged as technical service fee or
This is regarding the services performed by a person in the legal, medical, engineering profession or architectural. And various other services which involve advertising, accountancy, technical consultancy, interior decoration or some other profession that is acknowledged by the Board under Section 44AA.
Different administrations/services that are acknowledged under Section 44AA are company secretary, artist, and authorized representative.
Event managers, sports persons, anchors, commentators, referees & umpires, trainers & coaches, team physicians, physiotherapists and sports columnist are also covered under it.
Section 194J of the act states that non-compete fees are those in which amount is received either in money or kind in return for an contract that binds the individuals from sharing any license, patent, trademark, franchise or any business or commercial rights, technique or information likely to be utilized somewhere else for making elsewhere for manufacture, processing or any other temporary service.
It covers the services provided by a person for managerial, technical or consultancy services.
Administrations, for example, construction, mining and an assembly do not come under the category of technical services as a wage from the same would come under head salary of the recipient.
- Under this section implies that the consideration for:
- Transfer of rights regarding secret formula, invention, design, model, patent or trademark.
- Utilization or right to utilize an equipment for industrial, commercial, or scientific purposes.
- Sharing any information related to utilization of a patent, invention, formula, and so on.
- Utilization of a model, invention, patent, and so on.
- Transfer of rights related to scientific findings, literary work, video tapes or films for the purpose of no consideration for sale, radio telecom, distribution or exhibition of the same.
Some specific cases where TDS deduction is applicable U/S 197J, which is decided by the circulars of the department and case laws:
- Medicinal services rendered in hospitals.
- The sum which given to HR consultancy and recruitment agencies.
- Professional expenses charged by film artist from publicizing/advertising organizations.
- Payment made by organizations/companies to share registrars.
Key Points In Section 194J On TDS
- Under Section 194J, Rs.30,000 is the most extreme limit which is applicable to every payment or item autonomously. And no TDS will be deducted if the amount paid or likely to be paid does not exceed Rs. 30,000 in a financial year.
- TDS under this section is additionally applicable to compensation or commission or fees are given to an organization’s executive, despite the fact that the sum is not a part of the main income. In these cases, the Rs. 30,000 limit is not pertinent.
- TDS will be deducted for all class of person except HUF/Individual but if HUF/Individual is liable to get his tax audit held under section 44AB then this exception will not be applicable and then TDS will be deducted from their income.
- However, they will not be liable to pay TDS on the amount they get from technical and professional services because such sum will exclusively be paid for the individual purpose of such person or HUF.
Applying For TDS At A Lower Rate
As indicated by Section 197, the individual accepting payment can apply for a reduction of the rate in TDS, through filling in the Form 13 and sending it to the surveying officer.
In case it is affirmed by the officer, a certificate expressing a deduction in the TDS is issued to the assessee.
Time Limit To Deposit TDS Under Section 194J
Guidelines on time limit for depositing TDS under this section are-
- If the TDS deduction which comes under Section 194J is paid by the government or in place of the government, the deposit has to be made on the same day.
- In other situations, TDS can be deposited in a week from the end of the month in which the tax deduction has been made.
- If the payment is made on the last day of the financial year, the TDS deposit must happen within two months from that fiscal year’s end in which it was credited.
- Some extraordinary cases may be allowed to deduct TDS on a quarterly basis, given that the assessing officer has approved.
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- Bankbazaar.com. (2017). Section 194J: TDS on Professional & Technical Fees. [online] Available at: https://www.bankbazaar.com/tax/section-194j-tds-on-professional-technical-fee.html [Accessed 15 Jul. 2017].
- Duermyer, R. (2017). What is a Freelancer and How Can I Work At Home Freelancing?. [online] The Balance. Available at: https://www.thebalance.com/what-is-freelancing-1794415 [Accessed 15 Jul. 2017].