Withholding Tax on Invoices: How to Show WHT Correctly

Quick answer: Withholding tax on an invoice is income tax that your client deducts from the payment and sends to the tax authority on your behalf. Your invoice normally still shows the full gross amount plus any VAT or GST; the client pays the total minus the withholding tax and gives you a certificate so you can claim it as a credit.

Withholding tax (WHT) confuses many freelancers and small businesses because the money that reaches the bank does not match the invoice. A Pakistani supplier sees income tax deducted by a corporate buyer, an Indian consultant sees TDS taken from professional fees, and a foreign contractor billing a Saudi company finds 5% missing. None of that is a payment error: it is withholding tax on the invoice, applied by the payer. This guide explains how WHT works, how to show it, how to reconcile the shortfall, and how to use tax treaties to reduce it. If you need the invoice itself, the free invoice generator builds one in your browser with notes for withholding wording.

Important: This article is general information, not tax advice. Withholding rates, thresholds and certificate rules vary by country, payment type and the payee's status, and they change in annual budgets. Confirm the current rate with the tax authority or an adviser before relying on any figure here.

What is withholding tax on an invoice?

Withholding tax is a collection method. Instead of waiting for you to file a return and pay income tax on your earnings, the government requires the payer to deduct a percentage at source and remit it. You then claim credit for that deduction against your final tax bill, or in some regimes the deduction is your final tax.

Three features make it different from VAT, GST or sales tax:

• It is your tax, not the buyer's. It is usually an advance on the seller's income tax.
• It is subtracted, not added. VAT increases the total; withholding reduces the cash you receive.
• The payer is responsible for deducting it. A payer who fails to withhold can face the tax plus penalties.

Some countries also operate withholding on indirect taxes, such as sales tax withholding in Pakistan, where a registered buyer pays part of the sales tax directly to the government instead of to the supplier. Keep the two kinds separate in your records. For the differences between the consumption taxes themselves, see sales tax vs VAT vs GST.

How to show withholding tax on an invoice

The safest default is simple: invoice the full amount, and let the payer apply the withholding. The invoice records the value of your supply, which is what VAT, GST and sales tax rules care about. If you reduced the invoice total for WHT, your sales tax figures and revenue would be understated.

What you can add is information. Many sellers use the notes field for one of these:

• "Payment subject to withholding tax as applicable. Please provide the withholding certificate."
• "Income tax to be withheld at [rate]% on fees of [amount]. Net payable: [amount]."
• "Supplier is exempt from withholding under [certificate reference]; copy attached."

Show the expected net payable only when the client asks for it, and label it clearly as information so their accounts payable team does not mistake it for the invoice total. The invoice notes examples guide has more wording you can adapt.

Worked example: gross, WHT deducted, net received

An Indian consultant, registered for GST, invoices a company in the same state for professional fees of Rs 1,00,000. GST is 18% (9% CGST plus 9% SGST). The client must deduct TDS on professional fees at 10% (check the current rate and threshold, as explained below).

Line	Calculation	Amount (Rs)
Professional fees (taxable value)		1,00,000
CGST 9%	1,00,000 × 9%	9,000
SGST 9%	1,00,000 × 9%	9,000
Invoice total	1,00,000 + 9,000 + 9,000	1,18,000
TDS 10% on fees (excluding GST)	1,00,000 × 10%	(10,000)
Net received in bank	1,18,000 − 10,000	1,08,000

The consultant's invoice shows Rs 1,18,000. The bank shows Rs 1,08,000. The Rs 10,000 gap is a tax credit, not a bad debt. In the books, the receivable is cleared with two entries: Rs 1,08,000 to the bank and Rs 10,000 to "TDS receivable", which is set against the consultant's income tax liability. If TDS had wrongly been applied to the GST-inclusive total, it would have been 1,18,000 × 10% = Rs 11,800, an over-deduction of Rs 1,800.

Grossing up for a net-of-tax contract

Suppose a contract says a foreign consultant must receive SAR 50,000 after any Saudi withholding at 5%. The invoice amount is 50,000 ÷ (1 − 0.05) = 50,000 ÷ 0.95 = SAR 52,631.58. Check: 52,631.58 × 5% = 2,631.58 withheld, and 52,631.58 − 2,631.58 = 50,000.00 received. Without the gross-up, invoicing SAR 50,000 would leave only 50,000 − 2,500 = SAR 47,500.

Withholding tax by country

Country	Common WHT on service fees	Who deducts	Evidence for the seller
Pakistan	Income tax on services and supplies under the Income Tax Ordinance; rates depend on payment type and Active Taxpayer List status, and change in budgets	Companies, government bodies and other prescribed persons	Withholding certificate; deduction visible in FBR records
India	TDS, for example 10% on professional fees and 2% on technical services (check current thresholds)	Payers required to deduct TDS	TDS certificate and the deduction in your annual tax statement
Saudi Arabia	On payments to non-residents: 5% for technical and consulting services, 15% for royalties, 20% for management fees	Saudi resident payers	Payment records; treaty relief where documented
UAE	Corporate tax WHT exists but the rate is currently 0%	Not applicable in practice	None needed at 0%
United States	Backup withholding 24% if no valid TIN; generally 30% on certain US-source payments to foreign persons, reducible by treaty	US payers	Form 1099 or 1042-S

Rates in this table are summaries for orientation. Check the current rate for your payment type with the official source.

Pakistan

Pakistani companies and government bodies that pay for goods, services or contracts generally must deduct income tax at source, and the rate depends on the type of payment and whether the recipient appears on FBR's Active Taxpayer List. Non-filers face much higher rates. Rates for services in particular have changed in recent budgets, so confirm the current figure on the FBR website. Separately, some registered buyers must withhold part of the sales tax shown on a supplier's invoice. Our guide to sales tax invoices in Pakistan covers the invoice fields, and the Pakistan invoice generator creates PKR invoices. Freelancers exporting IT services are taxed differently, through bank deduction on foreign remittances; see freelancer tax in Pakistan 2026.

India (TDS)

India calls withholding tax "tax deducted at source" (TDS). From 1 April 2026, TDS provisions moved into the new Income-tax Act, 2025, which consolidates the old sections (such as 194J for professional and technical fees) into a single TDS framework. The headline rates for professional fees (10%) and technical services (2%) carried over, but section numbers, form names and some thresholds changed, so check the current rate chart on the Income Tax Department website. TDS is generally calculated on the value excluding GST when GST is shown separately. Our GST invoice guide covers the GST side of the same invoice.

Saudi Arabia and the UAE

Saudi Arabia applies withholding tax to payments made by Saudi residents to non-residents for services and income from Saudi sources. ZATCA guidance sets 5% for technical and consulting services, 15% for royalties and 20% for management fees, and a tax treaty may reduce the rate where the conditions are met and documented. Saudi VAT on imported services is usually handled by the Saudi customer under the reverse charge, so a foreign consultant's invoice normally shows no Saudi VAT; see reverse charge invoicing. The UAE's corporate tax law provides for withholding tax but at a 0% rate, so UAE clients do not deduct income tax from your invoices.

United States

For US contractors, the main risk is backup withholding: if you do not give a client a correct taxpayer identification number on Form W-9, they may have to withhold 24% of reportable payments. See the IRS backup withholding page and our guide to W-9 and 1099 for contractors. For foreign contractors, services performed entirely outside the US are generally not US-source income, but US clients still usually ask for Form W-8BEN or W-8BEN-E to document your status and any treaty claim.

Cross-border services and tax treaties

When a client in one country pays a supplier in another, both countries may want to tax the same income. Double taxation agreements (tax treaties) reduce that risk by capping or removing withholding on certain payments, and your home country usually gives credit for foreign tax withheld. To benefit you typically need:

1. A tax residency certificate from your home tax authority.
2. The payer's treaty form, such as W-8BEN for the US, or a local declaration.
3. Evidence of the nature of the service, because rates differ for consulting, royalties and management fees.
4. Timing: send the documents before the first payment, because many payers apply the full domestic rate otherwise.

Then keep the withholding statement the payer gives you, so you can claim a foreign tax credit at home. Our guide to invoicing international clients covers currency and payment details.

Withholding tax checklist

• Ask each new client whether they will withhold tax, at what rate, and on what base.
• Provide your tax ID, filer status, W-9, W-8BEN or residency certificate before the first invoice.
• Invoice the full gross amount, plus any VAT, GST or sales tax.
• Add a withholding note if the client wants it, labeled as information.
• Agree in writing whether fees are gross or net of withholding.
• When paid, record cash received and WHT receivable separately.
• Collect the certificate and match it to the tax authority's records.
• Claim the credit on your return and keep the certificates with your invoices; see how long to keep invoices.

Common mistakes with withholding tax

• Reducing the invoice total by the withholding amount, which understates revenue and any sales tax.
• Treating the shortfall as an unpaid balance and chasing the client for money already paid to the government.
• Writing it off as a bad debt instead of recording a tax credit.
• Not collecting certificates, which can cost you the credit.
• Applying WHT to the tax-inclusive amount when local rules say to use the value excluding GST.
• Sending treaty forms too late, after the full rate has already been withheld.
• Confusing income tax withholding with VAT or sales tax withholding.

Create an invoice ready for withholding

Build the invoice with the full fees and any sales tax, then use the notes to state the withholding position your client expects. A clear layout such as the Classic invoice template keeps the gross total and notes easy to find. When payment arrives short, reconcile it against the certificate rather than chasing the client.