Consultant and Freelancer Agreements in India: IP Ownership, Status, GST and TDS

Startups and growing businesses rely on consultants and freelancers for design, development, marketing and finance. The agreement is usually a one-page email or a downloaded template. Three things go wrong most often: the business does not actually own the work it paid for, the relationship looks like employment, and tax is handled inconsistently.

1. Who owns the work

Under the Copyright Act, 1957, the author is the first owner of copyright. The exception for work made by an employee in the course of employment under a contract of service does not apply to an independent consultant, who works under a contract for service. So unless the consultant assigns the rights, the consultant owns the code, designs or content — and your business has, at best, an implied licence.

An assignment must be in writing and signed by the assignor. Section 19 says it should identify the work and specify the rights, the duration and the territory; if the duration is not stated it is taken as five years, and if the territory is not stated it is taken as India. A present assignment (“hereby assigns”) of all rights in all deliverables, worldwide, for the full term of protection avoids both defaults. Include a waiver of moral rights to the extent permitted and an obligation to sign further documents (for example, for registrations).

Distinguish pre-existing IP: the consultant's own tools, libraries and templates should be licensed to you on a perpetual, royalty-free basis for use with the deliverables, rather than assigned.

2. Status: consultant, not employee

Labour and tax authorities and courts look at the substance — control over how work is done, integration into the organisation, who bears the risk, exclusivity, fixed working hours and whether the person can work for others. A consultant who works fixed hours from your office, reports to a manager like any employee and works only for you may be treated as an employee for labour-law and social-security purposes. With the labour codes in force from 21 November 2025, definitions such as “worker”, “employee” and “wages” are being applied under new rules — check how they affect long-term contractors.

Write the agreement as what it is: defined deliverables or services, the consultant's own methods and equipment, invoicing against milestones or time, freedom to work for others (subject to confidentiality and conflicts), and no employment benefits.

3. Fees, GST and TDS

• GST: a consultant registered under GST charges GST on the invoice; one below the registration threshold and not otherwise required to register does not. Ask for the GSTIN at onboarding.
• TDS: payments to resident consultants for professional or technical services, or under work contracts, attract TDS at the rates and thresholds in force (the Income-tax Act, 2025 applies from 1 April 2026 — confirm the current provisions). The agreement should say fees are subject to TDS and certificates will be issued.
• Payments to a non-resident consultant raise withholding-tax and treaty questions, and the consultant may need to provide a tax residency certificate.
• If the consultant is a micro or small enterprise registered under Udyam, payment within the time allowed under the MSMED Act matters for both interest and your own income-tax deduction (see our note on Section 43B(h)).

4. The rest of the checklist

1. Scope, deliverables, acceptance criteria and a change process.
2. Confidentiality that survives termination.
3. Data: if the consultant handles personal data, processing only on your instructions, security and deletion.
4. Non-solicitation of your employees and clients for a short period — not a broad non-compete, which is generally void under Section 27 of the Contract Act.
5. Termination on notice, with payment for work done and handover of materials.
6. Liability cap and, for higher-risk work, professional indemnity insurance.
7. Governing law and dispute resolution.

Onboarding routine

Collect PAN, GSTIN (if any), Udyam status and bank details; sign the agreement before work starts; record the IP assignment in the agreement itself rather than in a later email. The Consultant sheet in the free workbook gives you a ten-point review list.

Worked example: the logo you did not own

A startup pays a freelance designer for its logo and brand kit on the strength of an email quote. Two years later, while raising a round, the investor's lawyers ask for the IP assignment. There is none. The designer is reachable and cooperative, so the startup gets a written assignment signed — but it has to pay for it, and the round waits. Had the designer been unreachable, the startup would have been building its brand on rights it did not own. A one-paragraph assignment at the start avoids this.

Common mistakes

• No written assignment of IP, or a “will assign” promise instead of “hereby assigns”.
• Consultants given employee-like hours, email signatures and managers without thinking about status.
• TDS not deducted, or deducted at the wrong rate.
• No handover clause — source files, passwords and accounts stay with the consultant.
• Payment terms longer than the MSMED Act allows for a registered micro or small supplier.