In today’s digital-first economy, hiring freelancers from the U.S., Europe, or Southeast Asia is routine for Indian startups and agencies. But when you make a foreign remittance, TDS (Tax Deducted at Source) and FEMA/Income Tax rules come into play.
Failing to deduct TDS correctly or ignoring compliance while paying foreign freelancers can invite penalties and scrutiny from tax departments.
This complete checklist will guide you on how to handle TDS on foreign freelance services under Indian law.
🎯 Before applying TDS, classify the service:
Is it technical, consulting, professional, or creative?
Is it provided outside India but used within India?
📌 This classification affects whether TDS applies under Section 195 of the Income Tax Act.
You must confirm if the freelancer is:
Non-resident (NRI) under Section 6 of the Income Tax Act
A foreign company or individual with no permanent establishment in India
✅ If they are non-resident, Section 195 applies — and TDS may be required.
India has DTAA with over 90+ countries.
💡 Check if:
The freelancer's country has a DTAA with India
You can deduct TDS at a lower DTAA rate (instead of default 10% or more)
📎 Tip: You’ll need Form 10F, Tax Residency Certificate (TRC), and Declaration from the freelancer to apply DTAA benefit.
In absence of DTAA, default rates apply based on nature of service:
| Service Type | Default TDS Rate |
|---|---|
| Technical/Consulting | 10% |
| Royalty | 10%-20% |
| Professional Services | 10% |
| Others (general) | 20% or slab rate |
📌 Surcharge & cess may be applicable.
✅ If unsure, apply for a certificate for NIL/lower deduction under Section 195(2) via TRACES.
When sending payment abroad, banks require:
📄 Form 15CA – declaration by the payer
📑 Form 15CB – certificate from a Chartered Accountant (if amount exceeds ₹5 lakh or required by bank)
💡 Form 15CB verifies the TDS rate, nature of remittance & DTAA benefit.
After deduction, TDS must be:
💰 Paid to the government by 7th of the next month
🧾 Reported in Form 27Q (Quarterly TDS return for non-residents)
📌 Ensure correct PAN of freelancer (if available). If not, 20% TDS may apply.
You must provide the freelancer with:
🎫 Form 16A – TDS certificate showing the amount deducted and deposited
Helps them with claiming refund in their home country (if eligible)
❌ Assuming no TDS for freelancers outside India
❌ Ignoring DTAA rules
❌ Paying without 15CA/CB compliance
❌ Delaying TDS deposit → Leads to interest, penalty, and disallowance
📌 If:
Freelancer is outside India
Work is done AND used outside India
✅ TDS may not apply
👉 But proper documentation and CA opinion must be kept on file.
| Step | Action Required |
|---|---|
| Classify Service | Technical, consulting, creative, etc. |
| Confirm Non-Resident Status | Section 6, FEMA, PAN/Passport |
| Check DTAA | Apply lower rate if applicable |
| Obtain Form 10F + TRC | From foreign freelancer |
| Determine TDS Rate | Use Sec 195 or DTAA |
| File 15CA & 15CB | Upload to income tax portal |
| Deposit TDS | Within 7 days of next month |
| File Form 27Q | Quarterly return |
| Issue Form 16A | TDS certificate to freelancer |
| Document CA Opinion (Optional) | If claiming no TDS on outward service |
Handling TDS on international freelancer payments may seem complex — but with this checklist, you’re well-equipped to stay compliant, smart, and audit-ready.
✅ Whether you're a startup outsourcing web design to a U.S. designer or a fintech company hiring an AI expert from Canada — Section 195 applies.
🧠 Tip: Always consult a CA for complex DTAA or nil TDS deduction cases.