Disclaimer: As of FY 2024–25, no official notification has been issued to reduce the TDS rate for freelancers. Section 194J, which mandates a 10% TDS deduction on professional fees, remains applicable. This article examines a hypothetical 5% rate scenario and contrasts it with current law for awareness and educational purposes.
Introduction
Freelancers in India often struggle with TDS deductions, particularly when their total income does not actually attract tax under normal provisions. With recent discussions in the community around a potential reduction of the TDS rate from 10% to 5% for freelancers, it’s worth understanding the current law and exploring what such a change could look like — even though no official amendment has been made yet.
Current Scenario: Section 194J and the Tax Burden on Freelancers
Key Points of Section 194J:
- TDS is deducted at 10% on professional fees paid to freelancers or independent professionals.
- Applicable when a single payer pays more than ₹30,000 in a financial year.
- Deduction is made regardless of the freelancer’s total income.
Issue: TDS Deducted Even When No Tax is Payable
Under Section 44AB (Presumptive Taxation under Section 44ADA for professionals):
- Freelancers with gross receipts up to ₹50 lakh can opt for presumptive taxation.
- They are presumed to have 50% profit, which is then taxed.
- For FY 2023–24 onwards (AY 2024–25), the enhanced limit of ₹75 lakh or ₹3 crore applies only if cash receipts are below 5%.
- Importantly, no advance tax is payable for freelancers with turnover up to ₹24 lakh, provided they opt for presumptive taxation and tax liability is below ₹10,000.
The contradiction:
Even if a freelancer earns only ₹5–6 lakh per year and pays no tax under presumptive taxation, clients still deduct 10% TDS under Section 194J, leading to:
- Cash flow issues
- Delay in refunds
- Complexity in compliance
Hypothetical Scenario: If TDS Was 5%
If a rule were introduced to reduce the TDS to 5% for freelancers:
- It would reduce unnecessary tax withholding where actual tax liability is nil.
- It would align with how salaried individuals are taxed progressively based on slabs.
- It would reduce refund-related delays during income tax return filing.
Comparative Table
| Feature | Current Rule (Section 194J) | Hypothetical 5% TDS Rule |
|---|---|---|
| Applicability Threshold | ₹30,000 per payer | ₹50,000 total income |
| TDS Rate | 10% | 5% |
| Refund Complexity | High for low earners | Lower |
| Alignment with 44ADA | Misaligned | Better aligned |
| Applicable to | Professionals and freelancers | Freelancers only (hypothetical) |
Examples
Example 1: Designer earning ₹2,40,000
- Under 194J: TDS of ₹24,000 (10%)
- No tax under presumptive regime (44ADA) if opted — refund of ₹24,000 to be claimed
Example 2: Developer earning ₹20 lakh
- Profit presumed: ₹10 lakh
- Tax payable: as per slab (likely around ₹1.2–1.5 lakh)
- TDS under 194J: ₹2 lakh
- Refund process still required
Example 3: Working with Foreign Clients
- No TDS applicable under Indian law
- Income still taxable — freelancer must declare and pay tax through ITR
Common FAQs
1. Has the TDS rate for freelancers been reduced to 5%?
No. As of FY 2024–25, the rate remains 10% under Section 194J. No official announcement has been made to reduce it.
2. What if my income is less than ₹2.5 lakh?
You can submit Form 15G/15H to avoid TDS, but it is only valid if your total income is below the basic exemption limit and other conditions are met.
3. I earn less than ₹24 lakh under 44ADA, do I still have to pay advance tax?
No, advance tax is not required if your tax liability is less than ₹10,000 and you declare income under presumptive taxation up to ₹24 lakh.
4. Can I avoid TDS deduction if I show my client that I am under 44ADA and not taxable?
No. The payer is legally required to deduct TDS under Section 194J if annual payments to you exceed ₹30,000, regardless of your final tax liability.
5. Why do I have to file an ITR if I already paid TDS?
Because TDS is only a prepayment of tax. You must file an ITR to compute actual tax liability, claim deductions (if any), and apply for refunds if excess tax has been deducted.
6. Is TDS deducted on payments from foreign clients?
No. TDS is not deducted on foreign remittances. However, such income must be declared in your ITR as it is taxable in India.
Conclusion
Freelancers face a unique challenge in India’s current tax regime: TDS is deducted upfront at 10% even when no tax may be due under the presumptive taxation scheme. While a 5% TDS rate could ease cash flow and reduce refund dependency, such a provision does not currently exist.
Until any formal changes are announced, freelancers must comply with existing laws under Section 194J and plan taxes carefully under Section 44ADA where eligible. Accurate recordkeeping and timely ITR filing remain essential to claim refunds and stay compliant.
Stox N Tax 
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