Indian Tax Deducted at Source (TDS) or Withholding Tax

Upwork’s network reaches over 180 countries around the world. Because each country has its own rules and regulations, some users have taxes that are specific to where they live and work. In India, this includes a number of unique taxes. One of these is Tax Deducted at Source (TDS).

What is Indian TDS?

In India, Tax Deducted at Source (or TDS) is a means of collecting an income tax. Businesses are required to set aside a government portion for every payment they make in India, which is sent directly to the Indian government.

A law enacted in March and effective as of October 1, 2020, requires e-commerce operators outside of India (such as Upwork) to begin collecting TDS on payments made to service providers (such as the freelancers and agencies that use Upwork) based in India.

This means we will be required to withhold this tax from India-based agencies and freelancers using Upwork. We will then remit what we collect to the Indian government.

Does Upwork collect TDS?

Effective October 1, 2020, Upwork is collecting TDS on client payments to Indian freelancers and agencies. 

How much is TDS?

In general, TDS will apply to all client payments sent to Indian freelancers and agencies, with the amount of TDS to be collected determined by whether or not you have provided a PAN or Aadhaar number to Upwork.

  • A 0.75% tax is withheld from earnings for freelancers that provide a PAN or Aadhaar number to Upwork.
  • A 5% tax is withheld from earnings for freelancers that have not provided a PAN or Aadhaar.

 

NOTE

You will be able to claim a credit for the tax withheld against your tax liability for the financial year or seek a refund if tax withheld exceeds your tax liability for the year. You may wish to consult with a trusted tax expert or advisor for specific advice.

 

You will need to add a PAN or Aadhaar number in order to keep the withholding tax at 0.75% of your earnings, should we need to collect the tax. To enter your PAN or Aadhaar number, click here.

Please note that the rate of 0.75% is in effect until March 31, 2021, after which the rate is currenly scheduled to increase to 1%.

 

What is TDS and how does this affect me?

Tax Deducted at Source (TDS) is an effort by the Indian government to record transactions and collect income taxes. Certain Indian businesses have long been required to withhold TDS on payments in India, and the 2020 Union Budget required foreign e-commerce operators (like Upwork) do the same. This law is effective for payments beginning on October 1, 2020. The tax amount to be collected is dependent on whether or not you have provided Upwork with a Tax ID number, either a Permanent Account Number (PAN) or an Aadhaar number.

When will you start collecting the TDS in India?

We are beginning collection on all payments made on or after October 1, 2020.

How much will I be charged and to what is the tax applied?

The amount of tax we are required to withhold is dependent upon whether or not you have a valid PAN or Aadhaar number on file with Upwork:

  • For Upwork users that have a PAN or Aadhaar on file, we are required to withhold 0.75% of client payments to users.
  • For Upwork users that do not have a PAN or Aadhaar on file, we are required to withhold 5.0% of client payments to users.


NOTE: The withholding rate of 0.75% is effective from October 1, 2020, until March 31, 2021, and is scheduled to increase to 1% effective April 1, 2021.

The withholding tax is calculated based on the gross amount that the user invoices their client, so it is calculated prior to freelancer service fees or any other fees that may reduce the amount credited to the user’s account.

What does Upwork do with the money you withhold? Is this just a way for Upwork to make more money?

No, we are required to forward any tax we collect from our users to the Indian government.

I don’t have a PAN number or an Aadhaar number, what should I do?

If you do not currently have a PAN or Aadhaar number you may wish to consult with a trusted tax expert or advisor. Upwork cannot provide specific tax advice.

How/where do I enter my PAN number or Aadhaar number on Upwork?

You may enter your PAN or Aadhaar number in the Tax Info section under Settings.

I tried entering my PAN but got an error message. How do I correct this?

Please be sure to use the correct format for your PAN number as defined by the Indian government:

  • 10-digit alphanumeric entry, i.e., A A A A A # # # # A
  • # = Numeric A = Alphabetic
I tried entering an Aadhaar number but got an error message. How do I correct this?

Please be sure to use the correct format for your Aadhaar number as defined by the Indian government: 

  • 12-digit numeric entry, i.e., 111222333444
I don’t think I'm required to pay the TDS. What should I do?

Since we cannot offer specific tax advice, we suggest you reach out to a trusted tax expert or advisor to learn more about Indian TDS and your tax obligations.

How is this different from the Goods and Service Tax (GST)?

The GST only applies when both a freelancer and client live in India. The Tax Deducted at Source (TDS) applies to all your earnings, including those from clients in India and around the world.

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