TDS on Your Invoice: What Changed With the Income-tax Act 2025

What is TDS, and is it an extra tax?

When an Indian business pays a freelancer for professional or technical services, or for certain contract work, it is generally required to deduct tax at source at a prescribed rate and deposit it with the government against the freelancer's permanent account number (PAN). You receive the net amount, and the deducted portion sits to your credit.

It is not an extra tax. At the end of the year your total liability is computed on your income, and the tax already deducted is set against it. If more was deducted than you owe, the excess is refundable. Freelancers often treat deduction as a loss rather than a prepayment, which leads to both frustration and unclaimed refunds.

Not every payer deducts. Individuals paying for personal purposes, and payments below the annual thresholds, are generally outside TDS. Foreign clients are generally not required to deduct Indian TDS at all.

What changed on 1 April 2026?

The Income-tax Act, 2025 came into force on 1 April 2026 and replaced the Income-tax Act, 1961, renumbering provisions throughout. It also replaced the familiar 'previous year' and 'assessment year' with a single concept of the 'tax year'.

The old section references that everyone in Indian freelancing quotes, such as Section 194J for professional fees and Section 194C for contract work, are references to a statute that has been repealed. They still matter for income and deductions relating to periods before 1 April 2026, but new contracts and invoices should not rely on them.

Much of the substance carries over, so this is not a change to how deduction works in most ordinary cases. It is a change to what you should be citing. A contract stating that tax will be deducted 'under Section 194J of the Income-tax Act, 1961' now points at repealed law, and that is worth updating in your templates.

The old provisions freelancers usually saw

Why this guide does not give you the new section numbers

It would be easy to list the new equivalents, and it would be unwise. The renumbering is recent, the mapping is detailed, and the applicable provision depends on the nature of the payment, which for freelance work can turn on whether it is characterised as professional services, technical services or contract work. The thresholds also change: under the 1961 Act, for example, the annual threshold for TDS on professional fees was raised to ₹50,000 from 1 April 2025.

The honest position is that this is a question for your chartered accountant against your actual engagements, not something to take from a general guide. What a guide can usefully do is tell you the ground has moved, which is the part most people have not registered.

How much will the client actually pay you? A worked example

Suppose you are GST-registered and invoice ₹1,00,000 for design services plus 18 per cent GST of ₹18,000, a total of ₹1,18,000. Assume the client applies a 10 per cent rate for professional services. Where GST is shown separately on the invoice, the tax department's longstanding position under the 1961 Act was that TDS applies to the fee excluding GST, so the deduction is ₹10,000, not ₹11,800.

The client pays you ₹1,08,000 and deposits ₹10,000 against your PAN. When you file your return, the ₹10,000 is credited against your tax for the year. If your total tax for the year comes to ₹60,000 and clients have deducted ₹75,000 in total, you claim a refund of ₹15,000.

Two things go wrong often. Clients deduct on the GST amount as well, or apply 10 per cent to work that should be treated as technical services at a lower rate. Both are worth raising early, politely, with the client's accounts team.

How do you check that TDS was actually deposited?

Deduction and deposit are separate acts. A client can deduct from your payment and then deposit late, or against the wrong PAN. Your protection is to check.

Log in to the income tax e-filing portal and view Form 26AS and the Annual Information Statement (AIS). They show TDS deposited against your PAN, by deductor and amount. Match each entry to your invoices. If a deduction is missing, write to the client with the invoice number, amount and date of payment, and ask for the deposit details and the TDS certificate. Under the 1961 Act the quarterly certificate for non-salary payments was Form 16A; check the current form name with your accountant, as forms may be renumbered under the new rules.

Credit generally follows what appears against your PAN. A deduction that never reaches your 26AS is a deduction you will struggle to claim, which is why chasing it during the year matters more than chasing it at filing time.

Do freelancers need to pay advance tax?

Usually, yes. TDS rarely covers your full liability, especially if you have foreign clients, individual clients who do not deduct, or income above the rate at which your clients deduct. Under the 1961 Act, anyone whose tax for the year, after TDS, was ₹10,000 or more had to pay advance tax in instalments, generally due by 15 June, 15 September, 15 December and 15 March, with interest for shortfalls. Freelancers on the presumptive scheme could pay in one instalment by 15 March.

Advance tax continues under the Income-tax Act, 2025, but confirm the current thresholds and dates with your accountant. A simple habit helps: set aside 20 to 30 per cent of every payment received in a separate account and review it each quarter.

Can you reduce the TDS rate on your invoices?

If your actual tax is much lower than the TDS clients deduct, for example because you have large business expenses or are in a low slab, the 1961 Act allowed you to apply to the Assessing Officer under Section 197 for a certificate authorising deduction at a lower rate or no deduction. Clients would then deduct at the certified rate.

A similar facility exists under the new Act. It is worth exploring if you routinely wait a year or more for refunds of excess TDS. Your chartered accountant can tell you whether your figures justify an application.

What if a client deducts too much?

Over-deduction is common: a client may deduct on the GST component, apply the professional services rate to technical work, or deduct at the higher no-PAN rate because your PAN was missing from its records. Once the tax is deposited, you cannot get it back from the client, and the tax department will refund it only after you file your return.

So the useful moment to raise it is before the payment is processed. Send your PAN, a GST-separated invoice and, if relevant, a short note on why the work is technical rather than professional. If over-deduction has already happened, claim the full credit in your return and the excess will be refunded with any interest allowed by law.

What to do practically

• Put your PAN and, if registered, your GSTIN and Udyam number on every invoice.
• Show GST separately on the invoice so TDS is computed on the fee alone.
• Check Form 26AS and the AIS every quarter, not only in July.
• Ask clients for the TDS certificate rather than assuming it will arrive.
• Update contract and invoice templates that cite 1961 Act sections.
• Where deduction is made at a rate you did not expect, ask which provision the client applied and why.
• Confirm with an accountant how your engagements should be characterised and whether a presumptive scheme suits you.

The clause worth having

Contracts should state whether the fee is inclusive or exclusive of GST, that the client will deduct tax at source as required by law, and that the client will furnish the TDS certificate within a stated period. That last obligation is the one usually missing, and it is the one that costs freelancers time at filing.

Sample wording: 'Fees are exclusive of GST, which shall be charged at the applicable rate. The Client may deduct tax at source as required under the Income-tax Act, 2025 or any other applicable law, shall deposit it against the Freelancer's PAN within the time prescribed, and shall provide the Freelancer with the corresponding TDS certificate within 15 days of the date prescribed for its issue.'

Referring to tax deduction 'as required under applicable law', rather than naming a section, also protects your template from exactly the problem the renumbering has created.