Is TDS deducted on foreign income received in India?

Indian freelancers and agencies often notice that payments from foreign clients arrive with no tax deducted, while Indian clients deduct tax at source (TDS) from every invoice. Both are normal. Indian TDS is a collection mechanism run by the payer, and a client abroad usually sits outside it.¹ The income is still taxable.

This guide covers the position from tax year 2026-27, when the Income-tax Act, 2025 applies.⁵ It explains who deducts Indian TDS, when a foreign payment might carry a deduction, what to do about foreign withholding, and how to pay tax when no one deducts it for you.

What is TDS and who deducts TDS under the Income-tax Act, 2025?

TDS is income tax deducted at source by the person responsible for paying the income. Section 393(1) says that where any income or sum listed in its Table is credited or paid by the specified payer to a resident, the person responsible for paying it must deduct income tax at the listed rate, at the time of credit or payment.¹

• Residents: section 393(1) covers listed payments to residents.¹
• Non-residents: section 393(2) does the same for listed payments to non-residents.¹
• Timing: at the time of credit or payment.¹

All of these depend on a payer who falls within the Indian TDS provisions.

Which payers deduct TDS from a service exporter's income?

Indian business clients and e-commerce operators deduct TDS from a service exporter's income, while a foreign client paying directly from abroad usually does not.¹

The table summarises the usual position for a resident freelancer or agency in tax year 2026-27.¹² Say a marketing consultant has two Indian clients, one marketplace and three overseas retainers: all four rows apply in one year. Reconcile each stream separately so that income, TDS credits and foreign tax credits match your records.

Why do payments from foreign clients usually arrive without Indian TDS?

Payments from foreign clients usually arrive without Indian TDS because the deduction duty sits with the payer, and a client abroad paying for a service done in India usually does not operate Indian TDS.¹ For example, when a design studio in London pays an Indian illustrator by bank transfer, the illustrator's bank credits the full amount, less any bank charges. The receipt itself is not a listed payment under section 393.¹

The same applies to most payment routes: a direct SWIFT transfer, a local collection account, or a payment platform that converts and pays out. If a payout does show a deduction, check whether it is an Indian TDS entry (it will appear against your PAN), a foreign tax withholding, or simply a fee.

The main exception is a marketplace. If you sell services through a platform that is an e-commerce operator, the operator deducts 0.1% under section 393(1) Table serial 8(v), unless the ₹5,00,000 exemption applies.¹ See TDS on marketplace payouts.

How do you pay tax on foreign income when no TDS is deducted?

You pay tax on foreign income yourself when no TDS is deducted: the full tax on your export income falls due through advance tax during the year and self-assessment tax before you file. A tutor, consultant or developer paid entirely by foreign clients will often have no TDS credit at all, and should plan cash for tax instalments. See advance tax for freelancers.

1. Keep the invoice: with the client's details.
2. Keep the bank record: the bank credit advice or Foreign Inward Remittance Advice (FIRA).
3. Keep any foreign withholding statement: if tax was withheld abroad, for a claim in Form 44.²
4. Keep platform statements: if a marketplace deducted TDS.¹
5. Pay advance and self-assessment tax: during the year and before the return.

These records also support the foreign tax credit claim and the return.

What TDS rates and thresholds apply to a service exporter?

The TDS rates that come up most for a resident service exporter are 10% on professional fees above ₹50,000, 2% on technical fees, and 0.1% on marketplace sales.¹

Rates and thresholds are from section 393(1) of the Income-tax Act, 2025.¹

What happens if a foreign client withholds tax under its own law?

Tax withheld by a foreign client is foreign tax, and you cannot claim it as TDS in your Indian return. Instead, you claim foreign tax credit under rule 76 of the Income-tax Rules, 2026, by filing Form 44, subject to the limits in that rule.²

• Conversion rate: rule 76 converts the foreign tax at the State Bank of India telegraphic transfer buying rate on the last day of the month before the tax was deducted.²
• US clients: withholding is often avoidable. A non-US individual gives Form W-8BEN to the payer, and services performed outside the US are generally foreign-source income for a non-resident alien.³⁴ See W-8BEN for Indian freelancers.

See foreign tax credit and Form 44.

How is TDS calculated on an Indian client or marketplace payment?

TDS on an Indian client or marketplace payment is calculated by applying the section 393(1) rate to the amount credited or paid, once the threshold is crossed.¹

• Indian client: for example, an Indian business paying a resident consultant ₹2,00,000 in professional fees deducts 10%, or ₹20,000, under serial 6(iii), and pays the consultant ₹1,80,000.¹
• Technical fees: the same ₹2,00,000 as fees for technical services that are not professional services attracts 2%, or ₹4,000.¹
• Marketplace: an e-commerce operator selling ₹10,00,000 of an agency company's services deducts 0.1% of the gross amount, or ₹1,000; the ₹5,00,000 exemption is for individuals and HUFs.¹

Check each deduction against the credit shown on your PAN.

What are the common mistakes with TDS on foreign income?

The most common mistake is treating foreign income that arrives without TDS as tax-free, when the tax is still payable through advance tax and self-assessment.¹

• Claiming foreign withholding as TDS: it goes in Form 44 as foreign tax credit.²
• Mistaking fees for TDS: a deduction that does not appear against your PAN may be a bank or platform fee.
• Forgetting outward payments: if you pay a non-resident, such as a foreign subcontractor, section 393(2) may require you to deduct tax, depending on the nature of the payment and any tax treaty.¹ Rule 207 sets the exchange rate for TDS on income payable in foreign currency to an assessee outside India.² This needs separate advice from a chartered accountant.
• Skipping W-8BEN: US withholding is often avoidable with the right form.³

Reconcile TDS credits, foreign tax and receipts before you file the return.