GST on Freelancers: The Goods and Services Tax (GST) has impacted every area of India’s economy, whether it is a large company or a small or medium-sized business. Yes, freelancers are included under GST. however, they may or may not be required to pay GST.
Even if you are exempt from GST as a freelancer, it is important to understand how GST works because, if your business grows, you will be required to register under GST. In this article, let’s understand everything about Freelancers under GST in detail.
- What is Freelancer Under GST?
- GST Registration for Freelancers
- What is OIDAR Services under GST?
- Should Freelancer Register as a Composite Dealer?
- GST Rates on Freelancers
- What are the Invoicing Rules for Freelancers?
- Can Freelancer Claim the Input Tax Credit?
- Freelancers – Documents Required for GST Registration
- GST Returns for Freelancers
- Freelancers – Penalty for Late Filing GST Returns
- FAQs on GST on Freelancers
What is Freelancer Under GST?
A freelancer is someone who is not hired by anyone and is paid on a contract basis by a variety of clients to work on various short and long-term projects. To summarize, a freelancer is a type of service provider who does not have an employer-employee connection, and the GST laws for service providers will apply to freelancers as well.
GST Registration for Freelancers
Not all, but those freelancers falling under the following categories will have to register for GST as a freelancer:
- When the turnover exceeds Rs. 20 Lakh
- When the turnover reaches Rs. 10 lakhs which is applicable only for North-east states of India
- For services covered by OIDAR (Online Information and Database Access and Retrieval)
- In the case of service exports, any inter-state supply of goods/services necessitates GST registration. Under the IGST Act, export of services is referred to as “zero-rated supplies” and qualifies as an “inter-state supply
Note: The northeastern states under GST are listed below:
- Arunachal Pradesh
- Assam
- Himachal Pradesh
- Jammu & Kashmir
- Manipur
- Meghalaya
- Mizoram
- Nagaland
- Sikkim
- Tripura
- Uttarakhand
What is OIDAR Services under GST?
OIDAR services are defined as follows under the GST Act:
- Internet advertising
- Cloud service provisioning
- Internet distribution of e-books, music, movies, software, and other intangibles
- Providing data or information in the electronic form to anyone via a computer network, whether it be for retrieval or otherwise
- Online gaming services
Should Freelancer Register as a Composite Dealer?
Any service provider is not permitted to use the composition system under the GST Act’s provisions.
A restaurant service provider, on the other hand, is an exception to this rule. As a result, a freelancer cannot choose the composition scheme.
GST Rates on Freelancers
Depending on the type of service provided, freelancers are subject to GST rates of 0%, 5%, 12%, 18%, and 28%. If there isn’t a fixed rate for the service you’re providing, you’ll have to charge your customers 18% GST. For the following services, the GST rate is 18%:
- Accounting/Bookkeeping services
- Customer care services
- Data entry services
- Designing services
- Domain and hosting services
- Language translation services
- Management/Consultancy services
- Marketing services
- Software/App Development services
- Technical services
- Voice over services
What are the Invoicing Rules for Freelancers?
A freelancer’s invoices should be GST-compliant. The invoice should include all relevant information, such as the service provider’s and recipient’s GSTINs, the SAC of services, the date, and the amount of the service delivered and so on.
Can Freelancer Claim the Input Tax Credit?
With an input tax credit (ITC), you can deduct the tax you already paid on purchases from the GST you pay on your sales. According to GST regulations, all regular taxpayers who are registered for GST can use ITC to reduce their GST payments.
Similarly, a freelancer who is registered can use the taxes paid on services that he has used to provide any service.
For example, for a wedding session, a freelance photographer charges Rs 2,50,000 and a printing service charges Rs 50,000. Refer to the following table for details.
| Details | Rupees |
| Photography Services Provided | Rs. 2,50,000 |
| GST on O/P Services (18%) | Rs. 45,000 |
| Total Amount | Rs. 2,95,000 |
| Staffing Charges Paid | Rs.50,000 |
| GST on Service Received (18%) | Rs. 9,000 |
| Total Payment | Rs. 59,000 |
NET Amount of GST Payable by the Photographer: The net GST payable in this case will be as follows:
| GST to be paid on O/P Services | Rs. 45,000 |
| GST already paid on Service Received (Input Tax) | Rs. 9000 |
| NET GST Payable | Rs. 36,000 |
Freelancers – Documents Required for GST Registration
The list of documents required for GST Registration is given below:
- Passport size photograph
- Identity and address proof: a copy of your PAN and Aadhaar card
- A recent bank statement or a cancelled cheque
- Electronic signature of the registrar
- Electricity/Telephone/LPG Bill
- The agreement for the rental of office space
- Certificate of no objection
GST Returns for Freelancers
If a freelancer is registered as a normal taxable person, he will be required to file 25 GST returns each year which includes two monthly returns and one yearly return.
The officials of GST can easily trace a freelancer who doesn’t register and collect GST. Because if the TDS is deducted from an individuals payment (by the person making payment to him) or through payments in his bank accounts, the department will still be notified of his turnover. It’s difficult to avoid the gaze of the law because all banks accounts are linked to Aadhar and PAN numbers.
Freelancers – Penalty for Late Filing GST Returns
The officials of GST will also impose a penalty for the individuals who late file the GST returns. The penalty for late filing the GST returns are given below:
- An Rs.200 late fee will be charged.
- There will also be an annual interest rate of 18%. The taxpayer will determine this based on the amount of tax to be paid.
- If the tax is not paid, a minimum penalty of Rs.10,000 would be imposed.
- The highest penalty for unpaid tax is 10% of the tax full amount.
Freelancers Claiming GST Refund
If you export services, the GST law allows you to receive a GST refund into your bank account for the following reasons:
- GST charged and paid to the government at the time of export of services on the input services/goods utilised to provide such export of service.
The following are the most important requirements for claiming GST refunds:
- The FIRC is charged for proving the export of services.
- The reimbursement request must be submitted within 24 months of the month in which the services were exported.
FAQs on GST on Freelancers
Question 1.
Do freelancers need to pay GST?
Answer:
Yes, those freelancers, whose threshold limit is exceeding Rs. 20 Lakhs will have to pay 18% of GST on income earned from the freelanced services.
Question 2.
Do individual consultants need GST?
Answer:
Yes, the individual consultants will be needed to register for GST as a service provider if the suppliers annual turnover exceeds Rs.20 lakh (not applicable for the North-Eastern States) or if the suppliers turnover exceeds Rs.10 lakh if they belong to North-Eastern states.
Question 3.
What is the GST exemption limit for freelancers?
Answer:
The exemption limit has been increased to INR 40 lakhs per year in the recent declaration by the Finance Ministry. When freelancers earn more than INR 40 lakhs per year, they must register for GST. The exemption for north-eastern and hilly states has been increased to INR 20 lakhs.