TDS on International Payments from India: What Freelancers Need to Know

Section 195 of the Income Tax Act requires Indian residents and Indian companies to deduct TDS when making payments to non-resident individuals or foreign companies, where the income is taxable in India. Key points:

• When it applies: An Indian company paying a foreign freelancer for services where the benefit accrues in India. For example, a Mumbai startup paying a US developer to build software used by the Indian company.
• TDS rate: Typically 10–20% depending on the nature of the payment (royalties, technical services, professional fees). The default rate under Section 195 is 20% on gross amount unless reduced by DTAA.
• DTAA relief: India has Double Taxation Avoidance Agreements with 90+ countries including the US, UK, Australia, Germany, Singapore. Under the India-US DTAA, 'technical services' attract 15% withholding instead of 20%. The foreign freelancer must provide a Tax Residency Certificate (TRC) to claim DTAA benefit.
• Form 15CA/15CB: Before making the international payment, the Indian payer must file Form 15CA (declaration) online on the income tax portal. For payments above ₹5 lakh per financial year to a single non-resident, a Chartered Accountant must also certify Form 15CB.
• Consequence of non-deduction: The Indian payer becomes a 'defaulter' — liable to pay the TDS amount themselves plus interest and penalty. Banks are instructed to block international transfers above ₹5 lakh without Form 15CA.

If you're an Indian resident receiving payment from foreign clients, your tax obligation works like this:

1. All foreign income is taxable in India as business income (for freelancers) or professional income under Sections 28–44.
2. You must pay advance tax in four installments: 15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15 of the financial year.
3. Failure to pay advance tax results in interest under Section 234B (1% per month on shortfall) and Section 234C (1% per quarter on each installment shortfall).
4. Convert foreign income to INR at the SBI TT buying rate on the date of receipt for tax calculation purposes.
5. Declare all foreign income in Schedule FSI of ITR-3 or ITR-2 (not ITR-1, which doesn't support foreign income).

GST (not income tax) applies differently to international freelance income. Services exported from India are 'zero-rated supplies' under the IGST Act — meaning 18% GST does NOT apply to your foreign billing.

• Mandatory GST registration: Required when your annual turnover exceeds ₹20 lakh (₹10 lakh in special category states). Voluntary registration is possible below this threshold.
• LUT (Letter of Undertaking): To export services without paying GST (and then claiming refund), you must file a Letter of Undertaking on the GST portal each financial year. This is free and takes 10 minutes online.
• With LUT: Invoice foreign clients without GST. No input tax credit refund required since you're not collecting GST.
• Without LUT: You'd charge 18% IGST on export invoices and then claim a refund — unnecessarily complex for most freelancers.
• Practical tip: File your LUT on the first day of each financial year (April 1) to ensure uninterrupted GST-free billing.

Several types of notices relate to international payments:

• Section 143(1) mismatch notice: Income in AIS/Form 26AS doesn't match your ITR. Common cause: foreign income credited to bank and not declared in Schedule FSI. Response: file a revised ITR including the foreign income.
• Section 142(1) inquiry notice: Income Tax Officer asking for details of foreign bank credits. Response: submit bank statements, Wise/Payoneer transaction history, invoices, and ITR with Schedule FSI.
• Section 131 summons: Rare for freelancers. Requires personal appearance. Respond with CA assistance.
• FEMA notice: For very large receipts (above $1 million/year), RBI/FEMA compliance may apply. Consult a FEMA-specialised CA.

1. File LUT on GST portal before April 1 each year.
2. Maintain a spreadsheet of all foreign receipts with dates and SBI TT buying rates.
3. Pay advance tax in four installments (June, September, December, March) based on estimated annual income.
4. File ITR-3 (or ITR-4 for presumptive) by July 31, including Schedule FSI with all foreign income.
5. Report foreign bank accounts (Wise, Payoneer) in Schedule FA of your ITR.
6. Keep invoices and bank statements for 7 years.
7. If hiring foreign contractors above ₹5 lakh/year: file Form 15CA/15CB before payment.

TDS on international payments applies primarily to Indian residents receiving income from Indian sources, and Indian companies paying foreign contractors. The rules are different for each direction:

• Foreign client paying Indian freelancer: Generally no TDS if the foreign company has no India PE. The Indian freelancer receives gross payment and pays India income tax themselves via advance tax / ITR.
• Indian company paying foreign contractor: Section 195 TDS at 10-20% may apply depending on nature of payment and tax treaty. Obtain Form 15CB (chartered accountant certificate) and Form 15CA (online submission) for each such payment.
• Form 15CA/15CB procedure: For payments above ₹5 lakh to foreign entities for services, the Indian payer files Form 15CA (self-declaration) and may require Form 15CB (CA certification). This is the payer's obligation, not the foreign freelancer's.
• DTAA relief: If the foreign contractor is in a treaty country (USA, UK, Germany, etc.), lower TDS rates (often 10-15% vs standard 20-30%) apply on production of Tax Residency Certificate (TRC) from the contractor's home country.