TDS and GST when you hire freelancers in India: what clients need to know

Paying a freelancer in India looks simple — they send an invoice, you transfer the money — until your accountant asks whether you deducted TDS, or a freelancer asks why the amount you paid is ₹5,000 short. This guide explains the two pieces of Indian tax that come up most when businesses hire freelancers: GST on the invoice and TDS on the payment.

It is written for founders, finance teams and agency owners who want to understand the basics before they speak to their Chartered Accountant. It is not tax advice. Tax rules change with each Finance Act, so we link the official sources and date our figures.

The two questions to ask before the first invoice

1. Is the freelancer registered for GST? This decides whether GST appears on the invoice.
2. Is my business required to deduct TDS on this payment? This decides whether you pay the full invoice amount or deduct tax and deposit it with the government.

Collect two details from every freelancer before their first invoice: their PAN and their GSTIN (if they have one). Store them securely — PAN is personal data.

Part 1: GST on freelancer invoices

When does a freelancer have to register?

Under section 22 of the CGST Act, a supplier generally has to register for GST once their aggregate turnover in a financial year exceeds ₹20 lakh for services (₹10 lakh in specified special category states). Some suppliers register voluntarily below the threshold, for example to claim input tax credit or because their clients prefer it.

So, in practice:

• An unregistered freelancer will send an invoice without GST. That is normal and not a red flag on its own.
• A registered freelancer will add GST to their fee, show their GSTIN and the tax amount on the invoice, and report it in their GST returns.

Can my business claim the GST back?

If your business is registered and the service is used for your business, you may be able to claim input tax credit on the GST charged, subject to the conditions in the GST law (including the supplier reporting the invoice correctly). Your accounts team will check the invoice appears in your GST records before claiming.

Budget tip: say whether prices include GST

When you post a job, say whether your budget is inclusive or exclusive of GST. A ₹1,00,000 budget can mean ₹1,00,000 plus 18% GST, or ₹1,00,000 in total. Agreeing this up front avoids awkward conversations later. On Freelancers India you can post budgets in INR, and we recommend noting "+ GST if applicable" in your job description.

Part 2: TDS on payments to freelancers

What TDS is

Tax Deducted at Source (TDS) means that the payer deducts a percentage of certain payments, deposits it with the government against the payee's PAN, and the payee later claims it as a credit when they file their income tax return. It is not an extra cost to the freelancer if handled properly — but it does reduce the cash they receive now.

Section 194J: professional and technical fees

Payments for professional services and fees for technical services commonly fall under section 194J. Key figures for FY 2025-26 (AY 2026-27):

Sources: TRACES TDS rate table for FY 2025-26 and section 65 of the Finance Act 2025 amending section 194J.

Whether a particular freelance service is "technical" (2%) or "professional" (10%) depends on the facts, and different advisors take different views for some services. Software development, design, writing and marketing are not automatically one or the other. Ask your CA to classify your recurring freelance payments once, document the reasoning, and apply it consistently.

Who has to deduct?

Not every payer has to deduct TDS. Businesses and professionals above specified turnover or receipt limits, and companies, generally do. Individuals and HUFs who are not required to deduct under 194J may fall under a separate provision (section 194M) for large payments. Your CA can confirm which applies to you.

What about section 194C?

If the arrangement is really a contract for carrying out work (for example, printing or certain production work) rather than professional or technical services, section 194C (payments to contractors) may apply instead, with different thresholds and rates. Classification matters; do not guess.

A worked example

A private limited company in Pune hires a GST-registered freelance developer for a ₹2,00,000 project in FY 2025-26, and its CA classifies the work as fees for technical services.

1. The freelancer invoices ₹2,00,000 + 18% GST = ₹2,36,000.
2. The company deducts TDS at 2% on the fee. TDS is generally computed on the amount excluding GST where GST is shown separately on the invoice — confirm this treatment with your CA.
3. TDS = 2% × ₹2,00,000 = ₹4,000.
4. The company pays the freelancer ₹2,32,000 and deposits ₹4,000 as TDS against the freelancer's PAN.
5. The company files its TDS return and issues a TDS certificate, and the freelancer sees the credit in their tax statement and claims it when filing.

If the same work were classified as professional fees, TDS would be 10% (₹20,000), and the freelancer would receive ₹2,16,000. That is a big difference to someone's cash flow, which is why you should tell freelancers your TDS treatment before they quote.

Common mistakes (and how to avoid them)

• Deducting without telling the freelancer. Put your TDS treatment in the job post or offer.
• Missing the PAN. Without a PAN, a much higher rate can apply. Collect it at onboarding.
• Late deposit or late certificates. Late deposit attracts interest and fees for you, and missing certificates delay the freelancer's credit.
• Treating GST and TDS as the same thing. GST is charged by the supplier on the invoice; TDS is deducted by the payer from the payment. Both can apply to the same invoice.
• Ignoring payment terms. If the freelancer is registered as a micro or small enterprise on the Udyam portal, the MSMED Act limits payment terms to a maximum of 45 days where agreed in writing, and delayed payment can attract interest. Cases can be filed on MSME Samadhaan.

A simple freelancer payments process for small teams

You don't need enterprise software to get this right. A one-page process, agreed with your CA, covers most small businesses:

1. Onboarding: collect PAN, GSTIN (if any), bank details for transfer, Udyam number (if any) and the freelancer's legal name exactly as it appears on their PAN.
2. Classification: record once, per type of service, whether TDS applies and under which section and rate. Reuse it for similar work.
3. Offer or contract: state the fee, whether it is GST-inclusive, the TDS treatment, the milestone dates and the payment terms (for example, within 15 days of approval).
4. Invoice check: confirm the invoice shows the right legal name, GSTIN, tax amounts and description of the service.
5. Payment: pay the net amount, deposit TDS by the due date, and keep the challan reference.
6. Certificates: issue TDS certificates on schedule and send them to the freelancer without being asked.

A process like this protects your business in an audit and makes you a client freelancers want to work with again.

What Freelancers India does (and does not do)

Freelancers India is a marketplace for finding and working with freelancers — in India or abroad. Today:

• You can post jobs with budgets in INR or USD.
• You agree payment directly with the freelancer for each milestone; the platform does not process, hold or deduct anything from payments.
• We do not deduct TDS or issue tax documents on your behalf. Your business remains responsible for its own TDS and GST compliance.

Frequently asked questions

Do I deduct TDS on the GST amount too?

Where GST is shown separately on the invoice, TDS is generally computed on the amount excluding GST, based on guidance issued by the CBDT. Confirm with your CA for your specific case.

What is the 194J threshold for FY 2025-26?

₹50,000 per financial year for each category of payment under section 194J, raised from ₹30,000 by the Finance Act 2025.

A freelancer isn't GST-registered. Is that a problem?

Not on its own. Freelancers generally only have to register once their aggregate turnover exceeds ₹20 lakh in a financial year (₹10 lakh in special category states). Their invoices will simply not include GST.

Does the platform deduct TDS for me?

No. Freelancers India does not process payments, so it does not deduct TDS or issue TDS certificates. Your business handles TDS directly.

Is TDS different when I hire a freelancer outside India?

Yes. Payments to non-residents are governed by different provisions (such as section 195) and foreign exchange rules. Speak to your CA before paying a freelancer based abroad.

Sources

• CGST Act, section 22 (CBIC)
• TDS rates FY 2025-26 (TRACES, Income Tax Department)
• Finance Act 2025, section 65 — amendment of section 194J
• Udyam Registration portal
• MSME Samadhaan