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5828ecd4
Community Member

How to deduct tax from payment

Hello,

I hired a freelancer for my work and I am based out of India. The freelancer was also based out of India.

 

The due amount was deducted from account in full. However, my accountant came back to me and said this is not legal and I could face penalties for this. I am supposed to deduct 10% from the payment and pay it to the tax authorities here.

 

My question is: how do I set it up so that UpWork automatically debits 10% less from my account?

 

Thanks,

Rama 

18 REPLIES 18
VladimirG
Community Manager
Community Manager

Hi Rama,

 

Clients are billed for the full amount agreed with the freelancer, on which a 10% service fee is applied. You need to speak with a local tax consultant regarding your country's tax laws.

~ Vladimir
Upwork

I'm sure your accountant means well. But unfortunately he doesn't know what he is talking about. When you talk to other accountants or tax professionals in your community they'll probably get a good laugh out of what your accountant said and they'll be able to explain his mistake to you better then we could here.

Hi it seems that I've been given the same advice - its called TDS in India (tax deduction at source) and doesn't look like it can be avoided, even for foreign freelancers working for Indian clients.

 

Can you please explain why you said the accountant didn't know what they were talking about?

 

Thanks

Preston, it seems that your understanding of this topic is very limited. But that's understandable since you're not doing business from India, I suppose.

 

I've done extensive research on this topic and have consulted atleast 10 Chartered Accountants (aka CPAs in certain countries/ Tax Advisors). We work on the same lines with Google as well. It's a rule of the land and everyone has to follow that whether it's Google or Upwork or any company who does business with Indian clients.

 

As per section 195 of Income Tax Act, when we pay to ANY foreign entity, we need to withhold 10% Taxes in terms of Technical Services. There's no escape route to this and hence Upwork needs to provide that option to it's Indian Clients (atleast larger ones as if it's a sole proprietor firm then it's not applicable). Upwork can claim the same amount from Govt of India so as such Upwork gets 100% paid, not a single dollar less. The only question is now how Upwork can manage this operationally? Is there such an option to withhold tax amount while paying to Upwork?

f0bba6a2
Community Member

Hi Rama,

 

We're facing a similar problem. How did you end up treating this TDS?

 

Thanks

Freelancers are not going to pay money to Indian clients, or any other clients.

On Upwork, freelancers get paid by clients. Freelancers do not pay clients to work.

Upwork is not going to ask that freelancers pay money to clients.

 

So there are three possible outcomes here:

 

1) Clients in India can work with their accountants and figure out how to use Upwork while also complying with local laws

 

or

 

2) Upwork can make arrangements so that these things are worked out behind the scenes.

 

or

 

3) Upwork can block India as a country with which it does business. Meaning that people living in India will no longer be able to be clients or freelancers on the site.

You didn't even understand the question. Nowhere was it said that freelancer should pay money to client. Anyway.

Hi Soubhik,

 

I also have the same query. Did you get answer to it yet?

3c5a88a2
Community Member

Indian laws require to deduct tax in a contractor-contractee relationship, when a certain amount is passed. I am glad there is precedence to this and couple of fellow indians have asked same question. Were you able to figure it out?

 

I am only looking for help from people who have faced this and understand this.

 

 

AveryO
Community Manager
Community Manager

Hi Archana, 


You may find more information on India's service tax extensively discussed here, and here


~ Avery
Upwork
ashish-tulsian
Community Member

Hi, I could not find any correct answer for this question.

 

The querist and her accountant are actually asking question concerning Sec 195 of Income tax act, India which is similar to and known as 'tax with held'  in most countries. The query is not related to GST in India.

 

Now 195 states, in simple terms, that TDS (Tax deducted at source) needs to be dedcuted @10% (for technical services) when making a payment to a Non Resident. Upwork being a registered entitity outside will be covered in this definition even if the freelancer (payee) is in India, as when you hire a freelancer (payee) through upwork you are paying to upwork and upwork is paying to the freelancer (payee).

 

India also has Double tax avoidance agreement (DTAA) with different countries. Believing Upwork is registered in Australia, the DTAA with Australia, states that Income will be taxable in the country where the recepient is registered.

 

One can deduct TDS lower of the rate as specified in section 195 or in DTAA. In this case DTAA is lower so no tax should be deducted.

 

These are my views, if anyone has a different view please reaply.

 

 

 

 

 

 


Ashish T wrote:

 

India also has Double tax avoidance agreement (DTAA) with different countries. Believing Upwork is registered in Australia, the DTAA with Australia, states that Income will be taxable in the country where the recepient is registered.


Upwork is not based in Australia, but the USA.

If a freelancer in India provides services to an Indian client, it is a service provided in India. If the client is a non-Individual or an individual with Tax audit applicable then they need to deduct TDS US 194J. As on Upwork freelancer is paid the entire amount, the contract should be of 10% less amount and this amount should deposited as TDS to freelancers tax account. 

I don't doubt that there are accountants and/or tax experts in India who know how to handle this within the current limitations of the Upwork software system and the requirements of Indian tax law, and will know how to handle this when Upwork's systems change in the future, and will know how to handle things when India's tax laws change in the future.

Gee thanks, that is so insightful of you to point out... *eye-roll*

Hi Ashish, 

 

I am in the similar situation.  I am a Pvt Ltd Company  in India using Freelancers (from India). The solution you offered may not work as the invoice will be from Upwork and the payment is made to Upwork.  There is no direct financial relationship between myself and the freelancer. TDS is for the payment made. I will need a valid PAN in order to pay the deducted TDS to the payees account. How will this work. Please share any information you may have. 

Here is what I think. I might be wrong but there is certainly correct logic.

There are 3 parties-

1. Client- India
2. Upwork- US
3. Freelancers- India in this case

A client pays to Upwork, Upwork pays to Freelancer after deducting
commission and 1% TDS.

So, financially there is no relationship between the Client and the
Freelancer. It is between Client and Upwork.

Now the question is if TDS is applicable on payment to Upwork by the
client. Since Upwork is sending all the proceeds to the freelancer, client
is not paying anything above the freelancer's fees (Note 1). So there is no
question of deducting TDS as the money comes back to India and Upwork is
already deducting 1% TDS on payment to freelancer.

But what about the commission charged by Upwork from the freelancers which
is 10% to 20% of the invoice amount. Here the DTAA provision will become
applicable. Upwork is a tax resident of US so this income is taxable in US.
If someone deducts a TDS amount Upwork can file a return in India and claim
all the refund. Or if the freelance asks Upwork to provide a Tax residency
certificate from US I think they will provide and with that I do not think
there should be a need to deduct a TDS. Anyways the amount is small and TDS
on it also further small and that too can be claimed by Upwork so ITax
Department India should not be much eager to investigate.

Note 1- Even if Upwork charges a commission from client as well the TDS
will be a small amount and if TDS is not deducted the max could happen is
client will not deduction of the Upwork's commission expense but not the
entire amount.

465cfab1
Community Member

Hi Rama, 

Did you get a solution to your problem as i am in similar situation. Any info you provide will be very helpful. I have also written to their support. Lets see what they say. 

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