GST for Freelancers

GST on Freelancers: The How, Why and When of the New Tax Laws

.As the reality of India’s new tax policy – the GST – seeps in, many are still wondering about the late-night Parliamentary proceedings and the promises made. One almost believed there would be another Nehru-ish quote about the boons one would receive at “the stroke of midnight”. The internet, too, seems to be celebrating with debates and memes on what is really “good and simple” about GST!

One of the aims of GST is to bring the unorganised sector in India under the purview of the law. Freelancing in India is one of the sectors that has no specific laws; and though freelancers did pay a Service Tax and add the Swachh Bharat Cess and Krishi Kalyan Cess to it, by and large the industry has been unregulated and free from tax. The threshold limit for registration was INR 10 lakhs under the VAT regime. So, those who indulged in some hobby freelancing now and then never had to pay any taxes.

However, all of this is will change under GST. How? Let us tell you below.

Increase in tax rates

Under the Service Tax structure, the tax rate applicable to the service sector was around 14%. Add to that the cesses that were levied on the sector, and the total tax incidence came up to around 15%. Under GST, there is going to be a slight increase in tax rates, as the service industry is now liable to pay tax at 18% GST. This will increase the prices for the end consumers, i.e. your clients by a small margin. Hopefully, since the increase is only by a small amount it will not affect your business directly.

Clarity on registration thresholds

GST has very clearly defined thresholds for all mandatory registrations. For normal states, this limit is INR 20 lakhs, while for North Eastern states, the limit is INR 10 lakhs. So, whether you are a goods or service provider, you have to register for the tax policy mandatorily if your aggregate annual turnover is beyond this limit. The threshold limit has increased from INR 10 lakhs for normal states and INR 5 lakhs for North Eastern states.

However, this clarity also comes with a caveat. As per section 24 of the Central GST Act, every person who earns any income from outside the state or outside the country needs to get GST registration and the exemption limit will not apply. Freelancers who provide interstate services, or have an online profile will have to register in spite of their turnover numbers. Moreover, those who provide services across state borders will now have to take multiple registrations and file returns in all the states they operate in.

Availability of Input Tax Credit

Freelancers will now be able to claim ITC on stock, if they move from the exempt category to the taxable category. Under the earlier tax system, freelancers bore the cost of all the taxes such as VAT, CST, and Excise Duty on their own. Now, they will be able to claim ITC on the inputs purchased which should make life much easier for them.

Also, the cost of inputs like software, stationery, laptop and other gadgets, should also decrease in the long run due to ITC availability.

GST for Agencies

If an agency operates within its own state, then the exemption rules will apply. However, if the agency also takes up work from clients in other states, then they have to register under GST even if their annual income is below the threshold limit. This is because interstate sale of goods and services are taxable under GST, in spite of threshold limits.

GST for Bloggers

Under GST, tax authorities will consider blogging services as an online information and database access or retrieval service. Basically, the new law looks at blogging as a form of advertising through content, and advertising is a taxable supply under GST.

Bloggers advertising brands on their site offer a supply of service (publishing the advertisement) and the brand becomes the receiver of this supply. So, when you interact with brands directly and write paid posts or place their advert directly on your site, make sure to charge the right tax. However, if you only use Google AdSense then you might find a case for worry. Google is neither a supplier or receiver – it is only an intermediary.

Bloggers who use Google AdSense are unaware of the ads on their site. In most cases, there is no direct interaction with the clients. The payment comes via Google, who collects it from the brands/clients themselves. The law is still a little ambiguous about such special cases. These cases do not merit Reverse Charge either. However, the authorities will soon clarify this.

Understanding ‘Export’ of Service

Freelancers can also have overseas clients, in which case the service provided is treated as an export. The conditions for determining this are:

  • The supplier of service is located in India
  • The recipient of service is located outside India (Google India is still a local recipient)
  • The place of supply of service is outside India
  • The payment of such service has been made in convertible foreign exchange

Place of Supply

This generally refers to the state/country in which the recipient of the service is based. Now, if you have any doubts whether your client is based in India or abroad, check if the client’s information fulfils any two of the following conditions:

(a) The location of address presented by the recipient of services through internet is in the taxable territory;

(b) The credit card or debit card or store value card or charge card or smart card or any other card by which the recipient of services settles payment has been issued in the taxable territory;

(c) The billing address of the recipient of services is in the taxable territory;

(d) The internet protocol address of the device used by the recipient of services is in the taxable territory;

(e) The bank of the recipient of services in which the account used for payment is maintained is in the taxable territory;

(f) The country code of the subscriber identity module card used by the recipient of services is of taxable territory;

(g) The location of the fixed land line through which the service is received by the recipient is in the taxable territory.

If any two of these conditions are met, then your client would not be an overseas recipient, and the supply provided will not be taxed as an export.

Export of services and goods are exempt from GST. You will not be able to add any taxes on your invoice. This is an important pointer to keep in mind when making your invoices. It is now important to know when and whom to charge taxes on.

Registering for GST

The registration process is very simple and completely digitized. To complete registration, you will need the following documents:

1. Photo of the Authorised person

  • Proprietor in case of proprietorship
  • Managing partner/designated partner in case of firm/LLP
  • Managing director/whole time director in case of Companies

2. Proof of Registration

  • Partnership deed in case of partnership firm
  • Registration certificate in case of LLP and Companies
  • No registration certificate required in case of proprietorship

3. Proof of Principle place of business

If you

  • own the property, then ownership document like electricity bill, tax receipt/property tax receipt or registry documents of that place.
  • are on rent, then copy of rent agreement/lease agreement with electricity bill in the name of the owner.
  • neither own the property nor on rent, then submit electricity bill along with a copy of NOC.

4. Other documents

  • Scanned copy of bank statement/bank passbook or scan copy of cancelled cheque containing Name, bank account no., MICR, IFSC and branch details including code
  • Authorisation form

Also, once you have registered under GST, you will need to ensure that you follow the rules. Compliance and timely tax filing will be necessary. This will be an additional burden to many freelancers, but it is for the greater good of the industry. So, chin up, and get your GST mode on because this beast is here to stay!

NOTE: We will keep you updated on any further news and notifications from the government on the service and freelance sector. Stay connected!


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