How to deposit TDS on Upwork Commission

[#1]

Hello Indian Freelancers and CAs,

As I gather, we must deposit TDS on Upwork commission amount. Otherwise Income Tax Department can scrutiny you and charge heavy penalty.

What you guys are doing? What percent, and under what clause? As I understand, it could be 40% under section 195.i ( https://www.incometaxindia.gov.in/charts%20%20tables/tds%20rates.htm ). May be the Indian CAs here in the community can throw some light.

Thanks,
Sanjay

[#2]

The payment is between an Indian Entity(You) and a Foreign Entity(Upwork/Freelancer). IMHO TDS is not applicable.
If the freelancer is Indian, you can discuss TDS deductions before awarding the contract.

For a different Question. an admin had stated that the upwork fees is applicable only for cash transfer between client and FL, even if the cash transfer was for purchase of project related goods, but if the client directly pays for the goods(tool licenses, hosting fees, server fees, etc.) and has it shipped to the client the UW fees is not applicable. I believe TDS falls in this category.

[#3]

Thanks for the reply. Actually the Indian Entity (me) is the Freelancer, and the Foreign Entity is Upwork. Upwark takes some amount (5%) from the Indian Entity as commission. My CA says that the Indian Entity needs to deduct and depositTDS on that amount. But we aren't entirely sure how much. Could be 40% + cess etc.

What do you think?

[#4]

Interesting point,

Note UW is in USA and as per India's DTAA treaty the rate is 10-15% https://taxguru.in/income-tax/countrywise-withholding-tax-rates-chart-dtaa.html

I hope someone from upwork legal takes a look at this. and replies here.

I am not sure how one can make a TDS payment when UW proactively deducts the escrow fees(not commission) before remitting the amount? A related question would be deduction of TDS on the intermediate bank which charges some amount for wire transfer fees.

[#5]

Hi Sanjay and Vijayvithal,

Please refer to the information we provided on this thread as well as the information other freelancers located in India shared, and we'd suggest consulting a local tax advisor regarding any further questions you might have.

[#6]

@valdamir,
The Thread is not applicable to the Q. raised by Sanjay, The thread is about getting a certificate from the bank for local transfer. Where as Sanjay's Tax Advisor has pointed out that

1. Upwork needs to pay Taxes in India for the 20% commission charged by it.
2. Since Freelancer's are paying this commission to Upwork, they are responsible for witholding 10% of the commission amount and ensuring that UW complies with the Tax Law's (TDS = Tax Deduction at source).

Please get in touch with your Indian Tax advisor and resolve this issue.

[#7]

@Vijayvitha J, Sanjay,

It would be  of interest to know if any firm conclusion is reached on this TDS matter.

I have been on Upwork since a little more than month, and recently came across taxation discussions at some personal circle.

Since then trying to find clear modalities 'a freelancer' has to care for from taxation point of view, to avoid complex issues later from IT dept.

[#8]

Hi Vijay, Sanjay

      Did you guys found any answer for this? I was also checking for this issue and found your thread. Let me know if you found any answer for the TDS deduction on Upwork fee.

Thanks

[#9]

No, There is no resolution on this matter yet!

Recently Upwork sent a mail informing that on top of the 20% commission they will start deducting TDS.

I assume that they have consulted a CA and are working on the CA's advice to ensure that the transactions including the commission is in line with indian law's

[#10]

Hi Rajkumar,

Just to clarify, are you asking about the GST or the TDS charge?

If it's the latter (TDS), 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. You can find more information in this announcement thread.

If you're referring to GST, Upwork is currently working with its tax advisors to determine under what circumstances GST must be collected on transactions between Upwork and its users. If it is determined that tax is to be collected, we will contact our users in India to provide an explanation of what transactions will be assessed and the date any collection will start. 

[#11]

Valadimir,

For tax purposes there are 2 transactions that are taking place here.
1. Client pay's Freelancer the quoted amount.
2. Freelancer pay's upwork a 20% commission on the payment in #1

This discussion is related to the Tax implication of #2.
In theory, Upwork should be paying a tax on this amount and the Indian freelancer is required to deduct a certain percentage of this sum and deposit it with the tax authority as TDS.

Since Upwork deducts its commission directly, there is no way for the freelancer to deduct the Tax on this commission and deposit it with the authorities.

I am sure Upwork has consulted an Indian Chartered Accountant on this issue and ensured  that the way in which it deducts its commission is in-line with Indian Tax Law's and no further action is required from the freelancers side.

[#12]

Hi Vladimir, could you or someone from Upwork please respond to Vijay's message above. Basically, shouldn't we Indian freelancers deduct TDS from Upwork's commission?

My CA told me that because there's DTAA between India and US, maybe we shouldn't. Can you or someone from Upwotk please confirm?

[#13 · Accepted solution]

Hi Sanjaya and Vijayvithal,

Thanks for the follow-up. Please note that payments for Upwork's services are not subject to Indian withholding tax because Upwork's services are performed outside of India, and thus fall under rules in the US-India tax treaty. The treaty relieves the freelancers of any withholding obligation, and instead, Upwork is required to calculate tax on these services and remit directly to the Indian government (under the recently enacted Equalisation Levy).

[#14]

Thanks so much Vladimir! This is the info I was looking for. And thanks a lot Vijayvithal, for clearly explaining the issue!

[#15]

How do will i get those tds reduction amount back?

[#16]

Hi Arul Prasad,

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 can find more information within this help article.

Thank you!

[#17]

You are correct, however kindly note that as per Indian tax laws, in order to apply India - US treaty provisions, Indian person i.e., Indian freelancers are required to obtain Tax Residency Certificate from non-resident i.e., in this case, Upwork. Whether Upwork can provide Tax Residency Certificate obtained from US Revenue authorities.

[#18]

Great input. Upwork, can you please reply this, i.e. "Whether Upwork can provide Tax Residency Certificate obtained from US Revenue authorities?"

[#19]

Hi ,Upwork is required to calculate tax on  services and remit directly to the Indian government (under the recently enacted Equalisation Levy). Could you please explain this point.

I just want to know how I can get tax exemption / refund on the service fee I paid to upwork.

[#20]

Hello Vladimir,

The reply that you posted in Sep 2020, is it still valid or things have changed after that? As of date, it seems Upwork has a registered business in India, thus the liability of deducting TDS might get introduced. Can you please suggest. Thank you!

Regards,

tarun

[#21]

Hi Tarun,

You can learn the latest information about Indian Tax Deducted at Source (TDS) or Withholding Tax on Upwork here.

[#22]

Thank you Andrea. The link provides details on TDS deducted by Upwork while paying to freelancers. That part is clear. My question was related to liability on freelancers (agencies) to deduct TDS on fees paid to Upwork (20% commission). Can you or somebody guide on that?

thanks again.

[#23]

Hi Tarun,

Thank you for reaching out. What Vladimir said still applies. As of writing, payments for Upwork's services are still not subject to Indian withholding tax. Should there be any changes, we'll make sure to announce them here in the Community.

[#24]

Hi,

I want to understand TDS implications from your point #1 perspective. I've started a new startup and have recently awarded a contract to a freelanncer. My CA has told me that I'm liable to deduct TDS on the amount that I pay to upwork. However, I'm not understanding, how would I do that or what would be the process for the same. Can I get some help on this? 

[#25]

Hi Pratyaksh,

Tax Deducted at Source (TDS) is a means of collecting income tax in India by requiring businesses making payments in India to remit a portion of that payment directly to the Indian government. This means we will be required to withhold this tax from India-based agencies and freelancers using Upwork. Feel free to check out this help article for more information on this. 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. 

Thank you.