๐Ÿˆ
ยป Forums ยป Freelancers ยป Re: TDS Deduction liability on Indian Clients
Page options
skpatel20
Community Member

How to deposit TDS on Upwork Commission

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

ACCEPTED SOLUTION
vladag
Community Manager
Community Manager

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).

~ Vladimir
Upwork

View solution in original post

46 REPLIES 46
dyumnin
Community Member

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.

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?

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.

vladag
Community Manager
Community Manager

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.

~ Vladimir
Upwork
dyumnin
Community Member

@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.

@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.

 

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

 

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

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 userโ€™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. 

~ Vladimir
Upwork
dyumnin
Community Member

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.

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?

vladag
Community Manager
Community Manager

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).

~ Vladimir
Upwork
skpatel20
Community Member

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

How do will i get those tds reduction amount back?

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!

~ Bojan
Upwork
2c66d702
Community Member

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.

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

purvi_g
Community Member

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.

 

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

Hi Tarun,

 

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

 

~Andrea
Upwork

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.

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.


~ AJ
Upwork
ae0d8bdd
Community Member

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? 

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.

~ Aleksandar
Upwork

Hi Aleksandar,

 

Thanks for your reply. However, this still doesn't solve my query still. I've spoken to other advisors too but still there's no solution. Kindly have a discussion with your team and please help regarding the issue. To deposit TDS, we require the PAN number of the payee, which is not available to us. So either we get some access to it or even if we get something from Upwork that as a client we are not liable to deduct TDS as per some treaty or rule, that will also work. Please have a look and let me know.

 

Thanks

vladag
Community Manager
Community Manager

Hi Pratyaksh,

 

Could you please clarify if you're referring to the payment processing fee you're charged as a client or the freelancer service fee which is charged to the freelancer? It sounds like you're referring to the latter in which case I can reiterate the information Aleksandar provided, that TDS applies to freelancers' earnings.

Is it possible you're referring to GST and not TDS? Upwork isn't currently assessing GST on transactions as we're not yet registered in India. We are collecting GST numbers from Upwork users in India in case they are needed in the future in order to collect the tax.

~ Vladimir
Upwork
ae0d8bdd
Community Member

Hi Vladmir,

 

Please find below my clarification for your query

 

I'm talking about the entire payment paid by me as a client to upwork. 

For example, if I hire a freelancer for 100$+ 3$ (Processing Fee) = 103$. I'm referring to this entire 103$. I've been advised to deduct TDS on the same.

 

Thanks

Can someone please help with this query?

vladag
Community Manager
Community Manager

Hi Pratyaksh,

 

I apologize for the delay in following up on your question. Please note that we'll definitely update this thread once we receive more information regarding the specific process you asked about. Thank you.

~ Vladimir
Upwork
vladag
Community Manager
Community Manager


Pratyaksh A wrote:

Hi Vladmir,

 

Please find below my clarification for your query

 

I'm talking about the entire payment paid by me as a client to upwork. 

For example, if I hire a freelancer for 100$+ 3$ (Processing Fee) = 103$. I'm referring to this entire 103$. I've been advised to deduct TDS on the same.

 

Thanks



Hi Pratyaksh,

I apologise about the delay in providing the information you requested. Regarding the scenario you mentioned, we can can confirm that, upon request, Upwork will provide following documents to

Clients/Freelancers:

 

  • India Form 10F
  • No India Permanent Establishment Letter
  • US Tax Residency Certificate
~ Vladimir
Upwork
bksoft
Community Member

I request to please provide me the following:

  • India Form 10F
  • No India Permanent Establishment Letter
  • US Tax Residency Certificate
  • Declaration that Upwork is liable to pay equilisation levy to Indian Government and I (Indian Freelancer) is not required to do any TDS.

Hi Krunal,

 

One of the members will review your request and assist you via a support ticket. You can access your ticket and coordinate with the team here once it's been set up.

 

~ Arjay
Upwork

Hi, I'm an Indian client and have recently hired an Indian freelancer via upwork. Upon discussions with my CA, he is asking me to deduct TDS on the amount paid to Upwork for the contract as per some Income Tax Act Clause. However, I'm unable to understand the process. Can somebody from Upwork help resolve my query?

 

Thanks

deduct TDS on the amount paid to Upwork for the contract as per some Income Tax Act Clause

 

True. Upwork should provide some way to comply to this. This is the reason I, being an Indian, don't hire Indian freelancers.

I agree,
I have avoided Indian clients till recently because of the Tax Issues,I have one now and his first payment will open a pandora's box for me.

  1. The client is required to deduct GST and TDS for the freelancer and deposit it. For this he needs the freelancers GSTIN and PAN number...
  2. Similarly the freelancer is required to record the outward supply of services, for this the clients GSTIN is required.
  3. The clients GST filing will show a payment of Rs 100/- to me, My filings will show a reciept of Rs 80 (assuming 20% commission taken by upwork).
    1. I am not sure how the missing 20% will be handled by the system.
    2. I would prefer the client showed a payment of Rs 20 to Upwork and Rs 80 to me...

 

With the Indian government growing desperate for revenue and imposing heavy fines on the smallest mistake, Upwork needs to consult their CA and resolve these issues asap....

mayankhb
Community Member

Hi Vladimir,

 

The issue being discussed is not related to GST. It is about TDS (Tax deducted at source).

 

As per Indian Income Tax Law, whenever Indian Resident (in this case a "freelancer") pays anything to non resident (in this case "Upwork"), the resident is required to deduct Tax on the amount paid.

 

So, we (freelancers) want some clarity over whether we (freelancers) are liable to deduct tax on amount paid to you (upwork).

Yes, we need more clarification on this

Hello Did you receive any clarity on this? 

Nope. I'd say, upwork isn't suitable if you are an Indian freelancer (or an Indian client hiring an Indian freelancer), because of Govt. legalities, like GST, TDS, and Softex P0807 remittence. For last few years I'm facing these issues. Upwork, we'd be happy to help you by providing all inputs to enable you to think of a model to solve this issue. Otherwise, honestly, I'm lconsidering switching to another platform.

Latest Articles
Featured Topics
Learning Paths