How to split freelance project income with a friend and pay tax only on my share?

To pay tax only on your share, treat your friend as a consultant. Have him issue you an invoice for 50%, pay him via bank transfer, and claim that payment as a business expense in your ITR. This reduces your "Net Taxable Income" to just your 50% share.

1. You enter into a written agreement with your friend stating:

   • He is an independent contractor

   • Scope of work

   • Revenue-sharing or fixed consideration terms

2. He raises an invoice to you for his share (₹5 lakhs).

3. You pay him against that invoice.

4. You record:

   • ₹10 lakhs as gross receipts

   • ₹5 lakhs as professional expense (subcontract charges)

5. He declares ₹5 lakhs as his professional income.

✔ This is legally clean and commercially defendable.

If the payment exceeds ₹30,000 (which it does), then:

• Section 194J (professional fees) may apply.

• You may need to deduct TDS @ 10% before paying him.

• Deposit TDS and issue Form 16A.

Failure to deduct TDS may result in:

• Disallowance under Section 40(a)(ia)

• Interest and penalty exposure

Hi Sandhya, Thanks a lot for this, 

Should I make him send an invoice of 5 lakhs or 4.5 lakhs (deducting the 10% TDS) ?