If you are a freelancer in India, you might have heard of GST, or Goods and Services Tax. GST is a unified tax system that replaced multiple indirect taxes, such as VAT, service tax, and excise duty.
GST is important for freelancers because it affects how you charge your clients, invoice your services, claim tax benefits, and file tax returns. Depending on your annual turnover and the nature of your services, you may or may not need to register for GST.
We will explain the GST registration rules and limits for freelancers, and how to register for GST if you are eligible. We will also cover the pros and cons of GST registration, the GST rates and invoicing rules for freelancers, and how to file GST returns and pay GST taxes.
Who Is a Freelancer Under GST?
A freelancer is someone who provides services on a contract basis, without being employed by anyone. Freelancers are also service providers under the Goods and Services Tax (GST) law, and they have to follow the same rules as other service providers. Depending on their annual turnover, the nature of their services, and the location of their clients, freelancers may or may not need to register for GST.
According to a report, India has the second-fastest-growing freelance market in the world, with an estimated 15 million freelancers as of 2020.
Freelancers in India work in various sectors, such as IT, finance, design, content writing, online gaming, and more. The average hourly rate of Indian freelancers is $26, which is higher than the global average of $21.
When Is GST Registration Mandatory for Freelancers?
GST registration is mandatory for freelancers in India when they meet certain criteria. Here are the situations when a freelancer must register for GST:
- When their annual turnover exceeds Rs. 20 lakh in a financial year (For states other than the North-Eastern States).
- When their annual turnover exceeds Rs. 10 lakh in a financial year (For North-Eastern states)
- For services covered under Online Information and Database Access and Retrieval services (OIDAR services).
- In case of export of services whose value exceeds Rs. 20 lakh.
Turnover means the total value of all the taxable supplies made by a person, excluding the inward supplies on which tax is payable by the recipient.
OIDAR services include providing cloud-based services, online gaming, e-books, music, movies, software, and data or information through the internet.
If you are a freelancer who falls under any of these categories, you should register for GST as soon as possible to avoid any penalties or fines. You can register for GST online through the GST portal or through a GST Suvidha Provider.
What Are the Pros and Cons of GST Registration for Freelancers?
|GST registration can enhance the credibility and professionalism of freelancers, as it shows that they comply with the tax laws and regulations
|GST registration can increase the compliance burden and cost for freelancers, as they have to file GST returns, pay GST taxes, and maintain GST records on a regular basis.
|GST registration can enable freelancers to claim input tax credit for the GST paid on their business expenses, such as advertising, software, internet, and office rent. This can reduce their tax liability and increase their profit margin.
|GST registration can affect the pricing and competitiveness of freelancers, as they have to charge GST on their services, which may increase the cost for their clients.
|GST registration can allow freelancers to cater to a wider range of clients, especially those who prefer to work with GST-registered service providers. This can help freelancers expand their business and increase their income.
|GST registration can expose freelancers to the risk of penalties and fines for any errors, omissions, or delays in GST compliance.
How to Register for GST as a Freelancer?
To register for GST as a freelancer in 2024, follow these steps:
1. Check Eligibility
Verify if you are eligible for GST registration. Register if your annual turnover exceeds Rs. 20 lakh (or Rs. 10 lakh for North-Eastern states), if you provide online information and database access and retrieval services (OIDAR services), or if you export services exceeding Rs. 20 lakh in value.
2. Gather Required Documents
Collect the necessary documents for GST registration, including:
- PAN and Aadhaar card
- Identity and address proof
- Bank account statement or cancelled cheque
- Digital signature
- Electricity or telephone bill
- Rental agreement for office premises
- No objection certificate
3. Visit GST Portal and Create an Account
Go to the GST portal and create an account. Alternatively, use a GST Suvidha Provider for assistance. Fill out the online application form and upload scanned copies of the required documents. Upon submission, you will receive an application reference number (ARN) and a temporary GSTIN.
4. Verification of Application
Verify your application using an electronic verification code (EVC) or a digital signature certificate (DSC). Upon approval, you will receive a confirmation email and SMS. Subsequently, you will be assigned a final GSTIN and provided with a GST certificate.
5. Start Using GST
Once registered, you can begin charging GST on your services, claim input tax credit, and fulfill your GST return filing obligations.
What Are the GST Rates and Invoicing Rules for Freelancers?
The GST rates applicable to freelancers are 0%, 5%, 12%, 18%, and 28%, depending on the type of service you provide. If there is no specific rate for your service, you have to charge 18% GST to your clients.
The invoice raised by a freelancer should be GST-compliant, meaning it should contain all the necessary information such as name, address, GSTIN of the supplier and the recipient, SAC of services, date, value, and signature. You should also mention the place of supply, the GST rate, and the amount of GST in your invoice. You should issue an invoice within 30 days from the date of supply of service.
How to File GST Returns and Pay GST Taxes as a Freelancer?
To file GST returns and pay GST taxes as a freelancer, follow these steps:
- Determine Filing Requirements and Deadlines: Understand which GST returns apply to you as a freelancer. For freelancers, two essential returns are GSTR-1 (monthly or quarterly) and GSTR-3B (monthly). GSTR-1 reports outward supplies (sales and exports), and GSTR-3B summarizes inward and outward supplies, input tax credit, and tax liability.
- Prepare GST Returns: Gather information from your invoices, bills, and bank statements to prepare your GST returns. Use the GST portal or a GST Suvidha Provider for online filing.
- Generate Challan and Pay GST Taxes: Use the information from your GSTR-3B to generate a challan for GST tax payment. Then, pay your GST taxes. Online payment options are available through the GST portal or authorized banks. Failure to pay on time may result in interest and penalties.
We have covered the basics of GST for freelancers in this article, including the eligibility, registration, rates, invoicing, and filing of GST. GST can be a boon or a bane for freelancers, depending on how they manage their GST compliance and tax benefits. Here are some tips to help you optimize your GST compliance:
- Use online tools and software to generate and file your GST returns and pay your GST taxes.
- Keep track of your invoices, bills, and bank statements to claim input tax credit and avoid penalties.
- Consult a tax expert or a GST Suvidha Provider if you have any doubts or queries.
If you found this article helpful, please share it with your fellow freelancers and let us know your feedback in the comments below. Thank you for reading!
Frequently Asked Questions
The composition scheme is a simplified tax regime for small taxpayers who have an annual turnover of less than Rs 50 lakh. Under this scheme, they can pay a nominal GST rate of 6% (3% CGST and 3% SGST) on their quarterly supplies and file a quarterly return. However, this scheme is not available for service providers, except for those who provide restaurant services. Therefore, freelancers cannot opt for the composition scheme under GST, unless they are engaged in restaurant services
Input tax credit (ITC) is the amount of GST paid on the purchases of goods and services used for providing taxable output services. Freelancers can claim ITC on their GST returns by reporting their purchases and sales in the relevant tables. They can also claim ITC on the GST paid on the platform fees or commission charged by the online marketplaces through which they provide their services. However, they cannot claim ITC on the GST paid on personal or non-business expenses
Export of services is treated as a zero-rated supply under GST, which means no GST is payable on such services.
However, freelancers who export services are required to register under GST and file monthly or quarterly returns. They can also claim a refund of the ITC accumulated on their purchases used for exporting services.
To qualify as an export of services, the following conditions must be met:
1.) The supplier of services should be located in India.
2.) The recipient of services should be located outside India.
3.) The place of supply of services should be outside India.
4.) The payment for services should be received in convertible foreign exchange or Indian currency (as permitted by RBI).
5.) The supplier and the recipient should not be merely establishments of a distinct person.
If you provide services through online platforms such as Upwork, Fiverr, Freelancer.com, etc., you are liable to pay GST on your services at the applicable rates, depending on the type and nature of services. You are also required to register under GST and file returns, irrespective of your turnover. If you provide services to overseas clients, you can treat it as an export of services and claim a refund of the ITC. If you provide services to Indian clients, you can collect GST from them and pay it to the government. You can also claim ITC on the GST paid on the platform fees or commission.
If you are selling or closing your business, or if you are no longer liable to be registered under GST, you can cancel your GST registration. You can apply for cancellation of GST registration online through the GST portal or through your registered tax or BAS agent. Just fill and submit the Form GST REG-16, along with the relevant documents and information. You also have to file your final GST return and pay any tax dues before the cancellation takes effect.