Client TDS on Freelance Invoices: 2% or 10% and Your Cash Flow

The rule, briefly

Section 393(1), Table Sl. 6(iii) of the Income-tax Act, 2025_Bill.pdf) replaced the old section 194J. It sets:

The Table also sets a threshold of ₹50,000. How it applies to your pattern of payments is a question for the client's accounts team, so ask them early.

Invoices below are shown before any GST, which is a separate matter; see the GST threshold for freelance data work.

Case 1: presumptive profit within the rebate

You bill one client ₹1,50,000 a month for twelve months: ₹18,00,000 of receipts. If you are eligible for section 58(2) presumptive tax, deemed profit is 50%, or ₹9,00,000. With no other income, that sits within the section 156 rebate on the new regime for 2026-27, so tax is nil. The slab rates are on the e-filing portal.

The ₹12,000 monthly difference is what you actually live on, and it is the figure to budget with. Presumptive tax vs a salary covers who qualifies and what the 50% leaves out.

Case 2: tax is due, and 2% is not enough

Double the work: ₹3,00,000 a month, ₹36,00,000 a year. Deemed profit is ₹18,00,000. The standard deduction applies to salary, and section 58(4) allows nothing further against presumptive income, so tax is ₹20,000 + ₹40,000 + ₹60,000 + ₹40,000 = ₹1,60,000, or ₹1,66,400 with cess.

At 10% you are still over-deducted. At 2% you owe ₹94,400 yourself, so set that aside from each payment rather than treating the 98% as yours. Check when that tax falls due before the year ends, not at filing time.

What waiting costs

Over-deducted TDS is not lost, but it is cash you do not have. Suppose, as an assumption for planning, that the refund reaches you six months after the tax year ends. Each month's deduction is then held from the month it is withheld until that date. April's ₹15,000 waits 17 months; March's waits 6.

Across Case 1 at 10%, the twelve deductions add up to 138 rupee-months of ₹15,000. At a hypothetical 7% a year that you could have earned or saved on a loan, the waiting costs about ₹12,075. At 2%, it is about ₹2,415. The six-month wait is our assumption, not a stated timeline; replace it with your own.

# Hypothetical freelance invoices. New regime, tax year 2026-27.
def slabs(income):
    owed, floor = 0.0, 0
    for ceiling, rate in ((400000, 0), (800000, .05), (1200000, .10),
                          (1600000, .15), (2000000, .20), (2400000, .25),
                          (10**12, .30)):
        owed += max(0, min(income, ceiling) - floor) * rate
        floor = ceiling
    if income <= 1200000:
        return 0.0
    return round(min(owed, income - 1200000) * 1.04)

def tds_position(monthly_invoice, tds_rate, wait_after_year=6, yearly_rate=0.07):
    receipts = monthly_invoice * 12
    assert receipts <= 5000000, "check the presumptive receipts limit"
    tax = slabs(0.5 * receipts)                  # section 58(2) deemed profit
    withheld = monthly_invoice * tds_rate
    months_held = sum((12 - m) + wait_after_year for m in range(1, 13))
    return {
        "tds_year": round(withheld * 12),
        "tax": tax,
        "refund_or_due": round(withheld * 12 - tax),
        "waiting_cost": round(withheld * months_held / 12 * yearly_rate),
    }

for invoice in (150000, 300000):
    for rate in (0.10, 0.02):
        print(invoice, rate, tds_position(invoice, rate))

Practical steps

• Agree the rate before the first invoice. Describe the work plainly in the contract, and ask which rate the client will apply and why.
• Reconcile every payment. Invoice amount, TDS, and cash received should agree on each remittance. A missing TDS credit is harder to chase later than at the time.
• Budget on the net. Your monthly plan should use the cash you actually receive, with any refund treated as a later one-off.
• Ask for the client's TDS record. Request its record of tax deducted on your payments from time to time, and check it against your own list of remittances.
• Keep a running tax estimate. If your income grows mid-year, as in Case 2, recheck whether the TDS still covers your tax.

Client-facing delivery work often starts as a freelance engagement, and knowing how the money moves helps you quote it properly. Our FDE for Freshers programme is taught live online, with optional in-person labs at our Noida centre. Eligible learners meeting attendance and capstone criteria get assured job interviews through our hiring network, plus a post-course internship.