GST

GST on Freelancers – Applicability & Rates

Are you a freelancer or an independent contractor? Do you have to register under GST? Find out here!

India has emerged as a hotspot for devoted freelancers, and as a result, the freelancing economy has been steadily rising. However, it is obvious that this is an unorganized industry with no clear and defined laws and regulations. GST on Freelancers Skilled freelancers of different professions, bloggers, and consultants make up the country’s freelancing industry.

From food and travel to technology and fashion, freelancing has provided a forum for people to showcase their talents and be their own bosses. With the implementation of the Goods and Services Tax (GST), there has been much misunderstanding, and the new tax rules and regulations pertaining to this market have been ambiguous. 

Freelancers are those who work on many projects while not being employed by anyone. They perform specified jobs under contract and are compensated accordingly. Reading the definition, it is evident that a freelancer is a service provider, and the rules that apply to service providers apply to him as well.

Over time, the freelance industry has evolved to be one of the most profitable in the industry. As a result, it was required by law to be taxed. It is well known that freelancers must acquire GST registration and charge 18% Goods and Services Tax on any money from these services. This applies to those with an annual income of more than 20 lakhs.

Whether a ‘Freelancer’ is liable to be registered?

  • When the turnover exceeds the 20 lacs threshold (general cases)
  • When the turnover exceeds the 10 lacs threshold (specific cases of North-east states)
  • For services classified as Online Information and Database Access and Retrieval (‘OIDAR’),
  • In the case of service exports, any inter-state supply of goods/services requires a necessary GST registration. Under the IGST Act, the export of services is referred to as “zero-rated supplies” and qualifies as “inter-state supply.”

OIDAR services are defined in the GST Act as the following:

  • Cloud-based service provision
  • Internet marketing Online gaming services
  • Provision for online sales of e-books, music, movies, software, and other intangibles.
  • Providing data or information in electronic form, retrieval or otherwise, to any person via a computer network.

Voluntary Registration

A person can register for GST even if his annual turnover is less than 20 Lakh / 10 Lakh (in the northeastern states).

If a person registers voluntarily, he will be subject to all GST provisions. In other words, he must collect and pay GST, file returns, and so on.

Voluntary registration is advantageous when a person incurs significant expenses on which GST is paid. For example, if a company places ads on Google to attract new customers, a GST of 18% is due. If such a corporation fails to register, such GST cannot be claimed. However, if such a firm registers, it can claim GST credit that can subsequently be utilised to reduce GST payment and may ask for a GST refund (subject to certain conditions).

Providing Service Through Upwork, Fiverr, Freelancer, Guru, etc.

There is no difference in GST laws whether services are supplied through online marketplaces such as Upwork, Fiverr, or Freelancer.com, or directly to clients.

The taxability is as follows:

  • When the client is located from outside India, it is called a service export. Check that you have FIRC for any remittances received through Upwork or Freelancer.com. Online platforms typically offer choices for direct bank transfers to India for faster settlement;however, they do not offer FIRC. We recommend that you accept payment by wire transfer or PayPal since they will offer you FIRC, which is a very significant document to confirm the export of services.
  • When the client is in India -> It is not considered an export of services because the client is in India, and GST is applied on such transactions.

If services are offered through any of the marketplaces, the freelancer is solely responsible for collecting GST. In terms of GST, the marketplace plays no role.

Can a freelancer register as a composite dealer?

The composition plan is not available to any service provider under the requirements of the GST Act. A restaurant service provider, on the other hand, is an exception to the norm.

As a result, a freelancer cannot use the composition system.

Rate of Tax Applicable on the Freelancers

The GST tax rates are 0%, 5%, 12%, 18%, and 28%. The services will be taxed at the applicable slab rates. If nothing else is mentioned, the applicable tax rate is 18%.

Documents Required for GST Registration

  • Passport photograph
  • Identity and address evidence 
  • Identity and address evidence 
  • Recent bank statement or canceled cheque
  • Your electronic signature
  • Telephone or electricity bill
  • The lease agreement for office space
  • Certificate of No Objection

Invoicing Rules

A freelancer’s invoices should be GST-compliant. The invoice should include all relevant information such as the service provider’s and recipient’s name, address, GSTIN, SAC of services, date, and the value of the service delivered, among other things. You may use Razor pay Invoices to create GST-compliant invoices by following our GST invoice instructions.

Are the Freelancers eligible for input?

The freelancer, like any other taxpayer under the GST, is permitted to claim the input tax credit for services utilised to render services.

For example, he could be providing taxable service by using a laptop, electricity, telephone, and so on. Furthermore, the tax levied by the GST on Freelancers can be considered as input by the recipient of services. As a result, we can assume that the freelancer bears no GST burden and that his fee will not be decreased because he would collect the additional tax amounts from the clients.

Penalties

  • A 200 late fee will be charged.
  • There will also be an 18% annual interest charge. This will be computed by the taxpayer based on the amount of tax to be paid.
  • If the tax is not paid, a minimum penalty of 10,000 would be imposed.
  • The highest penalty for delinquent tax is 10% of the tax amount payable.

Should Returns be Filed?

A total of 25 returns must be made, including two monthly filings and one annual return. Click here to learn more about submitting returns. If a freelancer does not register and pay GST, the government will not be capable of following them.

If TDS is deducted in his case (by the person making payment to him) or through payments in his bank accounts, the department will still be aware of his turnover. Because all accounts are Aadhar and PAN connected, it is difficult to avoid the gaze of the law.

We can now see that a freelancer is subject to the Act’s laws, and noncompliance may result in a penalty.

The Tax collected At Source (TCS) under GST

Section 52 of the CGST Act requires e-commerce operators to collect TCS from individuals selling products or services through them.

Because Freelancer.in is registered in India, they are required to collect TCS at the rate of 1% on all payments made through them. However, it is only necessary to be collected from GST-registered individuals.

Upwork also collects 1% TCS from all freelancers, regardless of GST registration.

Intellectual property for Freelancers.

For freelancers, intellectual property (IP) is any form of the intangible invention of the human intellect that is used in business. Copyright, trademarks, patents, and trade secrets are all examples of intellectual property. As a freelancer, you must be aware of your intellectual property and know how to protect it.

Conclusion

If you need any signified services for GST or e-filing and other related queries, Vakilsearch can help you. Get in touch with us today!

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