A Complete Guide To GST For Freelancers In India
GST is a complex tax structure that is applicable to freelancers across the country. While there is much debate around who is eligible and who isn’t, there are certain brackets under which GST is mandatory. GST for freelancers also covers various service providers under different industries. That’s why freelancers must be aware of the regulations in place and remain compliant to them if they fall under the mandate.
Who is eligible for GST registration?
As per the latest announcement by the Finance Ministry, the exemption limit has been doubled to INR 40 lakhs per annum. When freelancers start generating upwards of INR 40 lakhs per annum, they need to apply for GST. For north-eastern and hilly states, the exemption is now at INR 20 lakhs. GST for freelancers applies when that threshold has been passed.
Added to that, the turnover limit for the businesses availing the composition scheme benefits has been raised to INR 1.5 crore. This is a net positive for the freelance industry, as it will attract more businesses to work with freelancers who don’t have to add GST to their final invoice. GST for freelancers is a value add to the industry.
What does this mean for freelancers?
In other words, you don’t need to worry about GST until you’re making upwards of INR 3 lakhs per month. This means that a majority of the early entrants to the freelancing industry won’t be affected by GST mandates. While the regulation stipulated turnovers of INR 20 lakhs per annum last year, this year will see more activity in the freelance domain after the doubling announcement.
This also means less operational challenges, with more businesses working in their fields without having to maintain GST compliant books. GST for freelancers used to be a headache and a cumbersome task to calculate. However, now the limit has been extended allowing for greater compliance with a lesser load.
It’s always good to have a record in place, but it’s not mandatory if you are under the exemption limit. Additionally, your business will continue to grow as you hire more employees and work on bigger projects. The exemption limit ensures that you can have that early push to reach for greater revenue.
Will I still have to pay Service Tax?
You will still have to pay service tax as per your annual income. GST is only applicable to the invoice you generate to your clients. You will have to collect GST from your client on behalf of the government. The ST mandated applies to the income you’ve generated over the financial year. Additionally, you will have to remain compliant with the schemes that you operate under.
As a service provider, you may find benefits in opting for the presumptive scheme of taxation u/s 44AD. This greatly helps in streamlining your returns and allows for smoother dealings. You need to fill out a simple form that calculates your tax due automatically.
Since the client is collecting TDS, it will also incorporate that amount to the final due. While GST for freelancers is applicable to scaled professionals, all professionals must pay service tax/income tax as per their annual income.
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What policies must freelancers adhere to under GST?
That law mandates that GST for freelancers must be complete and comprehensive as per the regulations mentioned. The invoice needs to be raised within 30 days from completion of services. Freelancers can opt for issuing an invoice on the 1st of the following month, which should give them enough time to pay their monthly GST bill.
“This would give them 50 days to realise the invoice and make payment of GST. It will not lead to any substantial blockage of own funds. However, if the invoice is realised after 50 days, the said GST will be paid from their own funds.”- Parag Mehta, Partner, N A Shah Associates LLP.
Freelances should also incorporate payment terms of 20-30 days to ensure that the payment is received on time each time. This will also help streamline the process of payment and ensure that freelancer is compliant with all policies.
Freelancers must submit a monthly summary return under GSTR 3B after paying all taxes applicable. You can also opt for quarterly filing, but monthly is preferable as it becomes a steady routine. There is a total of 37 returns needed to be filed under GST for freelancers..
Also, the GST rate applicable to your industry must be complied with. You need to find out the applicable tax rate pertaining to your industry. You need to also hire a GST compliant accountant to verify your books and have a GST tool to manage your invoices
Are there guidelines for invoice format?
Yes, all GST compliant invoices must have the following –
- GSTIN of the supplier as well as the recipient
- SAC of services
- Value, and
- all tax information related to the transaction.
The freelancer then must register the details on the portal as well.
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What are the tax codes for your freelance operation?
For each industry, there are specified tax codes for your business. If your business isn’t mentioned, then you are automatically charged under the 18% GST rate. This is done to simplify the GST filing process.
There are 0%, 5%, 12%, 18% and 28% tax rates for the GST program. You can work with online bookkeeping software that auto-calculate the rate for you, depending on preliminary information provided. You can look up your specific tax code under the service accounting codes (SAC) for your business.
If you are a blogger, then you are covered under the GST tax code as well. You are selling ad space on your blog, which gets covered under the advertising GST gamut. This will attract a special rate depending on the ad space being offered. GST for freelancers is a complex program but has specific rules to help you remain compliant. By being on time for all filing processes, you can expand your business without worrying about complications arising.
It’s important to note that if you’re earning upwards of 40 lakhs in a financial year, then you will have to follow the necessary guidelines for GST. When it comes to GST for freelancers, it’s important to have the right accounting and invoicing tools in your portfolio.
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