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?
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).
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.
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?
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.
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.
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.