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 proposed law, tentatively set to be enacted in the Fall of 2020, would require 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?

In short, not at this time.

For now, we are only collecting Permanent Account Numbers (PAN) and Aadhaar numbers from Upwork users in India. If the law as proposed is enacted, and we as a company are required to begin collecting the tax, we will let you know, and provide further information on how and when collection will begin.

How much is TDS?

In general, TDS will apply if your total annual Upwork earnings reach INR 500k (INR 5 lac, approximately $6,800 U.S. Dollars) or above.

The amount of TDS to be collected is determined by whether those living in India have provided a PAN or Aadhaar to Upwork:

  • A 1% tax is withheld from earnings for freelancers that provide a PAN or Aadhaar number. In general, TDS will apply if your total annual Upwork earnings reach INR 500k (INR 5 lac, approximately $6,800 U.S. Dollars) or above.
  • A 5% tax is withheld from all earnings (regardless of annual earnings amount) 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 1% of your earnings, should we need to collect the tax. To enter your PAN or Aadhaar number, click here.

 

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 now the 2020 Union Budget has proposed foreign e-commerce operators (like Upwork) do the same. This law is scheduled to be enacted in October 2020, so at this time, we are only collecting Permanent Account Numbers (PANs) and Aadhaar numbers from Upwork users based in India. If the law as proposed is enacted, we as a company will be required to begin collecting it and will follow up by email with more details.

When will you start collecting the TDS in India?

The law is proposed to go into effect in October 2020. At this time, we are only collecting Permanent Account Numbers (PANs) and Aadhaar numbers from Upwork users based in India. If the law as proposed is enacted, we as a company will be required to begin collecting it and will follow up by email with more details.

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

For those freelancers that have provided a PAN or an Aadhaar number:
If your earnings on Upwork exceed the USD equivalent, as determined by Upwork using applicable conversion rates, of INR 500k, we will withhold 1% of your Upwork earnings and forward it to the Indian government. Collection of the tax will not begin until you earn the USD equivalent of INR 500k.

For those freelancers that have not provided a PAN or an Aadhaar number:
We will be required to withhold 5% of all your payments, starting with the first dollar earned.

In either case, you will be able to claim a credit for the tax withheld in your annual tax filing and you may be due a refund from the Indian government if the amount withheld exceeds your tax liability. (You may wish to consult with a trusted tax expert or advisor for specific advice).

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

If we eventually collect any tax from our users we do not keep it. If we collect tax from you, we will be required, by Indian law, to forward the tax 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.

I saw in my account a place to add my TDS number. Am I supposed to do this?

We have added the ability to add these numbers to your Upwork account as early preparation, in the case that Upwork is required to collect the Tax Deducted at Source from freelancers based in India. At this time, we are only collecting Permanent Account Numbers (PANs) and Aadhaar numbers. If the law as proposed is enacted, we as a company will be required to begin collecting it and will follow up by email with more details.

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