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GST on Freelancers & Professional Services

India has emerged to be a hub for passionate freelancers and thereby, the freelance industry has been on a constant growing phase. However, it goes without saying that this particular industry is an unorganised sector and lacks clear and specific rules and regulations. The freelance industry in the country comprises of professional freelancers of various professions, bloggers and consultants. From a wide range of interests starting with travel and food to technology and fashion, freelancing has been a platform for people to display their talents and be their own boss. With the implementation of Goods and Services Tax (GST), there has been quite a confusion and the new rules and regulations of the tax concerning this market has been vague. This article is a GST Guide for Freelancers with the intent to simplify the complexity around the subject.

The GST has brought in a uniform law throughout the country be it for large business houses or the small and mid-size firms. Every person is directly or indirectly affected by it. We should know that even the freelancers would fall under the ambit of GST. 

Freelancers are persons who work on multiple engagements and are not employed by anyone. They work under contract basis on specific assignments and receive a contract fee for the same. On reading the definition, it becomes clear that a freelancer is a service provider and rules relating to service provider shall also be applicable to him.

Freelancers in India

Over time, the freelance sector has come out to be one of the highest revenue earning sectors in the industry. Hence, it was bound to be taxed under the law. It is widely known that freelancers are required to obtain GST registration and pay 18 per cent Goods and Services Tax for any income earned from these services. This is implemented to those who earn an income that exceeds the threshold of INR 20 Lakhs.

Whether a ‘Freelancer’ is liable to be registered?

We know that under the GST law, mandatory registration needs to be obtained in the following situations:

  • When the turnover crosses the threshold limit of Rs. 20 lacs (general cases)
  • When the turnover crosses the threshold limit of Rs. 10 lacs (specific cases of North-east states)
  • For services covered under Online Information and Database Access and Retrieval services (‘OIDAR’)
  • In case of export of services, since a mandatory GST registration is required for any inter-state supply of goods/services. Export of services is termed as “zero-rated supplies” and qualifies as “inter-state supply” under the IGST Act.

GST Registration for Freelancers – Exporting Services

According to Section 24 of the Central GST Act, an individual who earns an income from outside the country or the state, is liable to get themselves registered with GST and no threshold limit is applicable. To be more precise, the exemption of INR 20 Lakhs is only relevant to small business who earn their revenue from clients and entities present within the state. Hence, GST registration is mandatory for every freelancer who exports services outside the state or the country and earns revenue from the same, with any exemption limits. As indicated in the GST laws formulated by the Government, freelancing services are categorised under database access and online information.

What are OIDAR Services?

Under the GST Act, OIDAR services include the following:

  • Advertising on internet
  • Providing cloud service
  • Provision of e-books, music, movie, software and other intangibles via the internet
  • Providing data or information, retrieval or otherwise to any person in electronic form through a computer network
  • Online gaming

Whether composition scheme is applicable to a freelancer?

As per the GST Act, there is a special scheme notified in March 2019 that may be opted by a service provider with annual turnover of less than Rs 50 lakh. The compliance, conditions and benefits are similar to the composition scheme under Section 10 of the CGST Act. A nominal GST will be paid on quarterly supplies at 6% (3% of CGST and 3% of SGST). Based on the above, we can conclude that a scheme with nominal tax rate is available for freelancers as well.

What are the rules regarding invoicing?

The invoice raised by the freelancer shall be according to the GST laws. The invoice should contain name, address, GSTIN of the supplier as well as the recipient, SAC of services, date, value, and signature.

Is the service provider eligible for input?

The freelancer, like any other taxpayer under the GST is allowed to take the input tax credit of the services used by him for the purpose of rendering service. 

For example, he may be using a laptop, electricity, telephone etc to provide taxable service. Further, the tax being charged by the freelancer can also be taken as input by the recipient of service. Therefore, we can conclude that the burden of GST does not fall on the freelancer nor will his fee be reduced as he will be collecting the extra tax amount from the customers.

Should returns be filed?

A total of 25 Returns should be filed which includes 2 monthly returns and 1 annual return. To read more about filing returns, click here If a freelancer does not opt to register and collect GST, it is not that the Government will not be able to track it. 

The department will still know about his turnover either if TDS is deducted in his case (by the person making payment to him) or through the payments in his bank accounts. Since all accounts are Aadhar and PAN linked, it is tough to escape from the eyes of Law. 

We can now comprehend that a freelancer is bound by the laws of the Act and non-compliance may result in a penalty. To avoid the same, expert advice is recommended for registration, return filing and invoicing.

Penalties

When a freelancer fails to register themselves for GST, they would be liable to pay penalties. The penalty for not registering goes upto INR 25,000, and a penalty of INR 100 would be applicable for not filing GST returns.

Place of Supply

The place of supply would generally be the location of the service recipient. The service recipient is considered to be located in India under the following conditions.

  1. If proof of location is submitted online by the service recipient is well within the taxable territory.
  2. If the taxable territory has issued a means to make the payment settlements, this could include debit cards, credit cards, smart cards or value cards as well.
  3. If the billing address of the service recipient is well within the taxable territory.
  4. If the IP address of the device used by the service recipient is within the taxable territory.

Claiming GST Refund

Below is a quick brief on how a freelancer may claim a GST refund.

  1. File Form GST RFD-01 within two years from the date of export of services.
  2. The form is submitted and reviewed by the concerned authorities and issues an acknowledgement within 15 days under Form GST RFD-02.
  3. If approved, the concerned department would initiate a refund within sixty days from the date of applying.