TDS on Freelance or Consultancy Income in AIS – What You Must Check

The freelance and consultancy economy in India is booming! More professionals are choosing flexible work arrangements, offering their expertise independently. While this offers freedom, it also brings tax responsibilities. One crucial aspect is understanding and verifying Tax Deducted at Source (TDS) on your earnings. The Income Tax Department provides a powerful tool called the Annual Information Statement (AIS) to help taxpayers track their financial transactions, including TDS deductions. However, navigating the AIS and ensuring the TDS on freelance income or consultancy fees is accurately reflected can be confusing. This post will guide you through exactly what you need to check in your AIS regarding TDS deductions on your freelance or consultancy earnings, ensuring you claim the correct tax credits and stay compliant.

Understanding TDS on Freelance and Consultancy Income

Before diving into the AIS, let’s quickly refresh our understanding of TDS as it applies to freelancers and consultants. Understanding the basics helps in identifying potential issues when you review your statement.

What is TDS?

TDS stands for Tax Deducted at Source. It’s a method used by the Indian government to collect income tax directly from the source of income generation. When a client pays you for your services (beyond a certain limit), they are required to deduct a portion as TDS and deposit it with the government on your behalf, against your PAN. The core purpose is to ensure timely tax collection throughout the year and create a trail of income transactions, preventing tax evasion. For you, the freelancer or consultant, this deducted amount is essentially an advance tax payment that you can claim credit for when filing your Income Tax Return (ITR). Decoding TDS: Tax Deducted at Source Explained provides a comprehensive explanation of this mechanism.

Which TDS Section Applies? (Section 194J)

Payments made for professional or technical services generally attract TDS under Section 194J of the Income Tax Act, 1961. Both freelancing assignments and consultancy projects typically fall under the umbrella of ‘professional services’ or ‘technical services’ as defined in this section. Your client (the payer) is required to deduct TDS under Section 194J if their total payments to you for such services exceed ₹30,000 in a financial year. This threshold applies to the aggregate amount paid or credited during the year, not just single transactions.

Who is Responsible for Deducting TDS?

Not every client is required to deduct TDS. The responsibility primarily falls on specific categories of payers, including:

• All payers (excluding individuals and HUFs) like companies, partnership firms, LLPs, cooperative societies, etc.
• Individuals or Hindu Undivided Families (HUFs) whose total sales, gross receipts, or turnover from business or profession exceed the monetary limits specified under Section 44AB (tax audit limits) during the financial year immediately preceding the financial year in which the fee is paid or credited.

For example, if you provide consultancy services to a large company, they are almost certainly required to deduct TDS if your payment exceeds ₹30,000. However, if your client is an individual not subject to a tax audit (e.g., someone hiring you for personal advice whose own business turnover is below the audit threshold), they might not be required to deduct TDS.

Applicable TDS Rates under Section 194J

The standard TDS rate under Section 194J for fees for professional services and technical services is generally 10%. This rate applies if you have provided your Permanent Account Number (PAN) to the client. However, if you fail to furnish your PAN to the deductor (your client), they are obligated to deduct TDS at a much higher rate, typically 20%, as per Section 206AA. It’s crucial to always provide your PAN to clients making payments exceeding the threshold to avoid this higher deduction. There might be specific nuances or lower rates for certain sub-categories (like call centers at 2%), but for most freelance professionals and consultants, the 10% rate is standard. Refer to the TDS Rate Chart for FY 2024-25 (AY 2025-26) for detailed information.

Freelance vs. Consultancy Income: Any TDS Difference?

For the purpose of TDS deduction under Section 194J, the distinction between ‘freelance income’ and ‘consultancy income’ is often blurred. The Income Tax Act focuses on the nature of the service provided – classifying it as either ‘professional service’ or ‘technical service’. Both freelance writers, designers, developers, marketers, and consultants offering expert advice generally fall under these categories. Therefore, the TDS implications (Section 194J applicability, threshold, and rate) are typically the same regardless of whether you label your service as ‘freelancing’ or ‘consultancy’. The key determinant is whether the service rendered qualifies as professional or technical as per the Act.

What is the Annual Information Statement (AIS)?

The Annual Information Statement (AIS) is a relatively new, yet crucial, document provided by the Income Tax Department. It’s designed to give taxpayers a comprehensive overview of their financial activities during a financial year.

Introducing the AIS

Think of the AIS as a detailed report card of your financial transactions reported to the Income Tax Department by various entities. It consolidates information received from multiple sources, including:

• Banks (Interest income, high-value deposits/withdrawals)
• Financial Institutions (Mutual fund transactions, stock market trades)
• Employers (Salary details)
• Clients/Deductors (TDS/TCS details)
• Property Registrars (Purchase/sale of immovable property)
• Reporting entities under Statement of Financial Transactions (SFT) (e.g., credit card payments, foreign remittances).

This information is compiled against your PAN and made available on the Income Tax e-filing portal. Cash Deposits Above ₹10 Lakhs in Savings Account – AIS Reporting Explained is another aspect to consider when checking financial reporting through AIS.

Purpose of AIS

The primary objectives behind introducing the AIS are:

• Promote Transparency: To provide taxpayers with a clear view of the information the Income Tax Department possesses about their financial dealings.
• Enable Voluntary Compliance: By seeing this information upfront, taxpayers are encouraged to report their income accurately and pay the due taxes.
• Facilitate Accurate ITR Filing: AIS helps in cross-verifying financial information and assists in pre-filling certain fields in the Income Tax Return forms, reducing errors.
• Detect Mismatches: It allows taxpayers to identify any discrepancies between their records and the information reported by third parties early on.

How AIS Differs from Form 26AS

Many taxpayers are familiar with Form 26AS, which has been the go-to statement for checking TDS credits for years. While Form 26AS primarily focuses on Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) deposited against your PAN, along with details of advance tax, self-assessment tax, and high-value transactions (SFTs), the AIS aims to be much more comprehensive. AIS includes almost everything in Form 26AS plus additional details like savings account interest, dividend income, securities transactions, mutual fund transactions, foreign remittances, etc., often with more granular information about each transaction. While both should ideally be checked, AIS presents a broader picture of your reported financial footprint.

Why Reviewing Your AIS is Crucial

For freelancers and consultants, regularly reviewing the AIS is not just advisable; it’s essential. Here’s why:

• Ensures Correct TDS Credit: It verifies that the TDS deducted by your clients has actually been reported and deposited with the government under your PAN. This is vital for claiming the correct tax credit in your ITR.
• Early Detection of Errors: It helps you spot mismatches quickly – maybe a client reported an incorrect amount, used the wrong PAN, or deducted TDS but forgot to report it. Addressing these early is easier than dealing with them during ITR filing or potential scrutiny later.
• Accurate Income Reporting: AIS provides a consolidated view of reported income sources, helping you ensure you haven’t missed declaring any income stream.
• Minimizes Notices: Correctly matching your ITR with AIS data significantly reduces the chances of receiving automated notices from the Income Tax Department regarding information mismatches. Properly understanding what to check for TDS on income within the AIS is a proactive step towards smooth tax compliance.

Step-by-Step: Checking TDS on Freelance Income in AIS

Accessing and reviewing your AIS for TDS details is straightforward once you know the steps. It’s a crucial part of your freelance income tax check India routine.

Accessing the AIS Portal

Here’s how you can access your Annual Information Statement:

1. Log in: Go to the official Income Tax e-filing portal: https://www.incometax.gov.in/. Log in using your PAN (User ID) and password.
2. Navigate: Once logged in, go to the ‘Services’ tab in the top menu. From the dropdown, select ‘Annual Information Statement (AIS)’.
3. Proceed: You’ll be prompted with a pop-up. Click on the ‘Proceed’ button. This will redirect you to the separate AIS portal/compliance portal.
4. Access AIS: On the AIS homepage, you’ll see two main options: ‘AIS’ (detailed statement) and ‘TIS’ (Taxpayer Information Summary – a simplified summary). You can download either in PDF or JSON format. Select the relevant Financial Year (e.g., 2023-24 for income earned between April 1, 2023, and March 31, 2024). Click on the ‘AIS’ tile to view the detailed statement online.

Locating TDS Information within AIS

Inside the detailed AIS view, the information is categorized. To find TDS details related to your freelance or consultancy income:

• Navigate to the ‘Part B: TDS/TCS Information’ section. You might see this as a tab or a section within the online view or the downloaded PDF.
• Within this section, look specifically for transactions reported under Section 194J – Fees for professional or technical services. This is where most of your freelance/consultancy TDS details should appear.
• You might also want to scan other TDS sections like 194C (Payments to contractors) or 194H (Commission or brokerage) if you suspect a client might have used an incorrect section, although 194J is the most common for professional services.

Understanding the Displayed TDS Data

When you find the Section 194J entries, you’ll typically see the following key fields for each reported transaction:

• Information Source (Deductor) Name: The name of the client/company that deducted the TDS.
• Information Source (Deductor) TAN: The Tax Deduction Account Number (TAN) of the client.
• Amount Paid/Credited: The gross amount paid or credited to you by the client (this should ideally match your invoice value before TDS).
• Tax Deducted: The actual amount of TDS deducted by the client.
• Date of Deduction/Credit: The date associated with the transaction reporting.
• Status: Indicates whether the information is processed or still being verified.

Comparing AIS Data with Your Records

This is the most critical step. Don’t just glance at the AIS data; actively compare it with your own financial records:

• Your Invoices: Does the ‘Amount Paid/Credited’ shown in AIS match the gross value (pre-TDS amount) on the invoices you issued to that specific client for the relevant period?
• Bank Statements: Cross-reference the net payment received in your bank account. The difference between the gross invoice amount and the net amount received should equal the TDS deducted shown in AIS.
• Form 16A: If your client has issued Form 16A (the TDS certificate), compare the details mentioned in it (Gross Amount, TDS Amount, Client Name, TAN) with the corresponding entry in your AIS. They should match perfectly. Regularly performing this comparison is essential for managing TDS on freelance income.

Your AIS Checklist: What to Verify for Freelance/Consultancy TDS

To ensure your TDS is correctly reported and you can claim full credit, use this checklist when reviewing the Section 194J entries in your AIS. This consultancy income TDS checklist India helps catch discrepancies early.

Verify Deductor Details

• Client Name: Is the name of the deductor (your client) mentioned in the AIS entry correct and clearly identifiable? Sometimes abbreviations or slight variations might occur, but it should be recognizable.
• Client TAN: Does the Tax Deduction Account Number (TAN) mentioned in AIS match the TAN provided by your client? You might find the TAN on Form 16A or correspondence from the client. While you might not always have the TAN readily available, verifying the name is crucial. If the TAN is available, check it matches.

Check Gross Amount Credited/Paid

• Match with Invoices: This is vital. Does the figure listed under ‘Amount Paid/Credited’ in the AIS accurately reflect the total gross value (before TDS deduction) of the invoices you raised to that client during the reported period? Discrepancies here could mean the client reported an incorrect base amount for TDS calculation.
• Aggregation Check: If you had multiple invoices from the same client, ensure the reported amount in AIS corresponds to the correct set of invoices or the total payment made in a specific quarter/period as reported by the client in their TDS return.

Confirm TDS Amount

• Correct Calculation: Based on the ‘Amount Paid/Credited’ shown and assuming you provided your PAN, is the ‘Tax Deducted’ amount correctly calculated at the standard rate (usually 10% for Sec 194J)? Calculate it yourself: (Amount Paid/Credited) * 10% = Expected TDS. Does this match the figure in AIS?
• PAN Status: If the TDS amount seems higher (e.g., 20%), it might indicate the client didn’t have your PAN when filing their TDS return. This needs immediate attention.

Align Transaction Reporting

• Timing: Does the reporting period or transaction date mentioned in AIS broadly align with when you actually received the payment or when the service was completed/invoiced as per your records and agreement with the client? Minor timing differences between accounting entries and actual payment might occur, but significant date mismatches should be investigated. Clients usually deposit TDS and file returns quarterly, so the reporting might reflect quarterly aggregate figures.

Identify Mismatches or Missing Entries

• Missing TDS: Are there TDS deductions confirmed by clients (e.g., mentioned on their remittance advice or you have Form 16A) that are completely missing from your AIS?
• Incorrect Entries: Are there entries showing incorrect gross amounts or TDS amounts compared to your records and Form 16A?
• Unknown Deductors: Do you see TDS entries from deductors you don’t recognize? This could be an error (e.g., wrong PAN quoted by someone else) and needs to be flagged. This aspect is a key part of what to check for TDS on income.

Found a Discrepancy? How to Handle TDS Issues in AIS

Discovering a mismatch between your records and the AIS can be concerning, but there’s a process to address it. Prompt action is key.

Common Discrepancies

Some frequent issues freelancers and consultants might encounter include:

• The TDS amount shown in AIS is different from 10% of the gross amount.
• The Gross Amount (‘Amount Paid/Credited’) in AIS doesn’t match your invoice value.
• A client confirmed they deducted TDS and even provided Form 16A, but the entry is missing in AIS (or Form 26AS).
• TDS is reflected in AIS, but you haven’t actually received the net payment yet (could be a timing difference between client accounting and actual fund transfer).
• TDS deducted under an incorrect section (e.g., 194C instead of 194J).

Step 1: Contact the Deductor/Client

This should always be your first step.

• Reach out politely to your client’s finance or accounts department. Clearly explain the discrepancy you found in your AIS (e.g., “My AIS for FY 2023-24 shows TDS of ₹X against gross payment of ₹Y from your company under Sec 194J, but my invoice was for ₹Z, and the TDS should be ₹A”).
• Provide supporting documents like your invoice copy and bank statement if needed.
• Request them to verify their TDS return filed for the relevant quarter. If they made an error, ask them to file a revised TDS return to correct the information and issue a revised Form 16A reflecting the accurate details. Resolving issues related to TDS on freelance income India often requires cooperation from the deductor.

Step 2: Provide Feedback on the AIS Portal

The Income Tax portal allows you to provide feedback on the information displayed in your AIS.

• Locate Transaction: Find the specific transaction entry in AIS that has the discrepancy.
• Click Feedback: There will usually be an option or button labelled ‘Feedback’ associated with each entry. Click on it.
• Choose Feedback Type: Select the most appropriate reason for the discrepancy from the dropdown menu. Common options include:
  • Information is not correct
  • Information is not fully correct
  • Information relates to other PAN/Year
  • Information is duplicate / included in other information
  • Information is denied
• Submit Details: You’ll likely need to provide the correct information or state why you deny the transaction. Submit your feedback.
• Important Note: Submitting feedback informs the Income Tax Department about the discrepancy from your perspective. However, it does not automatically correct the record. The underlying correction usually needs to be done by the entity that reported the information (i.e., your client filing a revised TDS return). Your feedback flags the issue for departmental review and can be useful if scrutiny arises.

Impact on Your ITR Filing

Dealing with discrepancies requires careful handling during ITR filing:

• Report Actual Income: Always report your income based on your actual earnings (invoices raised, amounts received/accrued) under the appropriate head (usually ‘Profits and Gains from Business or Profession’ for freelancers/consultants), regardless of what AIS shows.
• Claiming TDS Credit: This is tricky. Generally, you should claim TDS credit only for the amount that is correctly reflecting in your AIS / Form 26AS and for which you possess valid proof (Form 16A).
  • If TDS is correctly deducted and you have Form 16A, but it’s missing in AIS/26AS, you can still claim it in your ITR, but be prepared for potential scrutiny. You’ll need the Form 16A and proof you contacted the client for correction.
  • If AIS shows incorrect details (e.g., lower TDS), claim only the amount shown, or claim the correct amount if you have solid proof (Form 16A) and have initiated correction steps (feedback, client communication). Claiming higher TDS than reflected without proof can lead to inquiries. Consulting a tax professional is wise in complex mismatch scenarios.

Importance of Documentation

Thorough record-keeping is your best defense:

• Keep copies of all invoices issued.
• Maintain bank statements highlighting payments received.
• Carefully file all Form 16A certificates received from clients.
• Keep records of communication (emails, letters) with clients regarding any TDS discrepancies and correction requests.

This documentation is crucial if you need to justify your income reporting or TDS claims to the tax department.

Conclusion

For freelancers and consultants in India, proactively checking the Annual Information Statement (AIS) is no longer optional – it’s a vital part of managing your tax compliance. Verifying the details of TDS on freelance income and consultancy earnings ensures that the tax deducted by your clients is properly accounted for, allowing you to claim the correct credit when filing your Income Tax Return.

By following the steps outlined – accessing AIS, locating Section 194J entries, and meticulously comparing the deductor details, gross amounts, and TDS figures against your own invoices, bank statements, and Form 16As – you can identify discrepancies early. Remember to contact your client first for corrections and then provide feedback on the AIS portal. Accurate AIS verification leads to smoother ITR filing, helps you get the full tax credit you’re entitled to, and significantly minimizes the risk of future tax notices or complications. Make it a habit to review your AIS regularly.

Need help reconciling your AIS data or ensuring your ITR is filed accurately, reflecting the correct income and TDS claims? Contact TaxRobo’s experts for assistance with TDS verification and seamless tax compliance.

FAQ Section

Q1: What if my client deducted TDS but it’s not showing in my AIS or Form 26AS?

Ans: Contact your client immediately. Request the Form 16A (TDS certificate) and ask them to provide proof of the TDS deposit challan (showing payment to the government). It’s likely they either haven’t filed their TDS return for that quarter yet, or they made an error in their filing (e.g., quoted the wrong PAN). They need to file or revise their TDS return correctly for the credit to reflect. While you can provide feedback on AIS that information is missing, the primary action rests with the client (deductor).

Q2: Can I claim TDS credit if it’s in AIS but I don’t have the Form 16A?

Ans: The AIS reflecting TDS credit is strong evidence, but Form 16A is the official certificate issued by the deductor confirming the TDS deduction. Ideally, you should always obtain the Form 16A. If, despite your best efforts, the client fails to provide it, the fact that the TDS is reflecting in your AIS (and likely Form 26AS) significantly strengthens your position to claim the credit. However, it’s best practice to keep records of your attempts to obtain the Form 16A. If the amount is substantial or you face issues, consulting a tax advisor is recommended.

Q3: My TDS on freelance income is showing under Section 194C (Contract) instead of 194J in AIS. What should I do?

Ans: This suggests your client may have categorised the payment incorrectly while filing their TDS return (Section 194C applies to payments for work contracts, while 194J applies to professional/technical fees). You should contact the client, point out the error, and request them to use the correct section (194J) for future deductions and potentially revise past returns if feasible. For your ITR filing, you should report the income under the correct head (‘Profits and Gains from Business or Profession’) and claim the TDS credit shown. You can also provide feedback on the AIS portal indicating that the section applied is incorrect for the nature of the service provided.

Q4: How often should I check my AIS for TDS details?

Ans: It’s good practice to check your AIS periodically, perhaps quarterly, especially after due dates for clients to file their TDS returns (usually follows the end of each quarter). This allows early detection of issues. At a minimum, you must review your AIS thoroughly before filing your annual Income Tax Return to ensure accuracy and claim the correct TDS credits.

Q5: Is checking AIS enough, or do I still need Form 26AS?

Ans: It’s advisable to check both AIS and Form 26AS. Form 26AS is primarily a statement of tax credit, showing TDS/TCS deposited against your PAN, advance tax paid, etc. AIS provides a more comprehensive view of various financial transactions reported to the IT department, including those that might not involve TDS (like savings interest, share transactions) and often offers more detail on TDS transactions themselves. Cross-referencing information in both statements gives you the most complete picture for verifying details and ensuring accurate tax filing.