From the time GST or Goods and Service Tax was introduced in July 2017 by replacing VAT and service tax, it has in some way or the other impacted every arena of the economy, be it small or mid-sized businesses. All Indians have been affected by the GST laws, directly or indirectly. In the same way, freelancers also fall under the scope of GST.

However, you may wonder if you do not function under a business name, then why do you need to bother about GST registration as a freelancer. Once your business starts to grow, you will have to file GST registration, and as GST applies to service providers, knowing all the details associated will help you later. Scroll down to understand how GST laws can impact the freelancers.

Who All Can Be Termed as Freelancers According to GST Laws?

According to the GST laws, freelancers can be referred to as professionals who indulge in multiple engagements without being an employee of any particular organization. They work on a contractual basis and get paid accordingly. Therefore, as evidence that a freelancer provides services, GST laws are applicable to them. 

Cases Under Which a Freelancer Needs to Get GST Registration

As per the GST laws, a freelancer will have to get GST registration done in the following cases:

  • When a freelancer’s income is more than 20 lakhs in a financial year (Applicable all over India except for the North-Eastern States)
  • When the turnover of the freelancer is more than ten lakhs in a financial year (Applicable for the North-Eastern States)
  • If a freelancer is associated with any of the services covered under OIDAR (Online Information and Database Access and Retrieval)
  • In cases where a freelancer is engaged in export services, and the turnover exceeds 20 lakhs. (It is because the inter-state supply of goods or services comes under the IGST Act)

Services That Come to Under OIDAR Services

The below-mentioned services belong to the category of OIDAR as per the GST rules.

  • Offering cloud-based services
  • Online gaming services
  • Advertising on the internet
  • Provision of software, e-books, music, movies, and other tangibles with the help of an internet network
  • Providing with information or data, which is retrievable or otherwise to any person in digital form via a computer network

Availability of Composite Dealer Scheme for Freelancers

As per the GST Act provisions, a special scheme was introduced in March 2019 for the freelancers or service providers with an annual turnover not exceeding 50 lakhs. The benefits, compliance, and conditions provided for this scheme are similar to that of the composite dealer scheme given in Section 10 of the CGST Act. 

A nominal GST of 6% (3% of SGST and 3% of CGST) needs to be paid on the quarterly supplies. Therefore, though not the composition scheme, a plan with a nominal tax rate is available for the freelancers.

Tax Rates Applicable for Freelancers

The tax rates provided under the GST are 5%, 12%, 18%, and 28%. Out of these, the freelances can be taxed at any slab rate depending upon the service he provides. Generally, if no specific rate is provided for the service, you will be required to charge 18% GST.

Significant Invoicing Rules for the Freelancers

The freelancer must raise the invoice as per GST laws. The invoice should contain all kinds of necessary information such as an address, name, GSTIN number of the supplier, the recipient, the value of service offered, SAC of services, signature, date, etc. Moreover, you will also require some documents for GST registration

Some of the essential documents that a freelancer may require are:

  • The digital signature of the person concerned
  • Photograph
  • Copy of Aadhaar and PAN card
  • Identity and address proof
  • A canceled cheque or latest bank account statement
  • No Objection Certificate
  • Telephone or electricity bill
  • The rental agreement that one may have from renting an office

Can a Freelancer Be Entitled to Input Tax Credit (ITC)?

Input Tax Credit (ITC) means that one can reduce the tax amount, already paid on inputs, from the GST that needs to be paid after the sales. Like every other taxpayer registered under GST, freelancers can also take the help of ITC to lessen their tax liability. For instance, to provide taxable services, the freelancer must be needing a laptop, telephone, electricity, internet connections, etc.

Moreover, in this way, the freelancer’s tax can be seen as the input on the recipient’s side, who pays the freelancer for the service. This ensures that GST’s entire burden does not fall on the freelancer, and it does not affect the remuneration charged by him.

Return Filing for Freelancers

A freelancer will have to file 25 GST returns in a financial year, provided he is a country’s taxpayer citizen. The total number of returns also includes one annual return and two monthly returns.

If the returns are not filed on time, the person concerned will have to have to face the following penalty issues.

  • He will have to pay Rs. 200 as of late fee
  • The government will levy interest of 18% per annum. The interest will be calculated on the entire tax amount that needs to be paid by the taxpayer.
  • If the tax has not been paid, a minimum fine of Rs. 10,000 will be levied
  • The maximum penalty can go up to 10% of the entire tax amount if the tax is not paid. 

Key Takeaway

As evident, getting GST registration is a must if the freelancer complies with the cases under which it becomes compulsory. If you do not register and collect GST, the government will still get to know about your income either by the TDS deducted by the client or simply by keeping track of your bank payments. 

Moreover, as all the accounts are linked with PAN and Aadhar, you will be bound by laws to get GST registration. To get expert advice on the registration processes and get everything done in a hassle-free manner, contact FinGurus.