Good and Services Tax has covered all the small, medium and large scale enterprises under its ambit. Any organisation dealing in services and product segment is mandated to have GST registration done and pay their taxes and file for returns as required.
Even freelancers who are working independently for varied segments will have to apply for new gst registration and pay their taxes accordingly. Not every freelancer has to pay GST, but it is important to know how GST can be applicable to them.
Freelancer As Per GST
A person involved in short and long term contractual projects with single or multiple clients and providing services without any employer-employee relationship is termed as a freelancer. The GST rules might apply to the person based on the type of service being offered and income criteria.
GST Registration For A Freelancer
Under the following conditions a freelancer working as a service provider will have to register under GST:
- A service provider with a turnover of more than Rs. 20 Lacs in a financial year should mandatorily register on the GST portal and pay their taxes. The rule is different for states other than North-Eastern states
- A freelancer situated in a North-Eastern state and having turnover of more than Rs. 10 Lacs should register for GST
- Services stated under Online Information and Database Access Retrieval Services (OIDAR)
- Freelancers involved in the export service where the annual value of the good and services exported exceeds Rs. 20 lacs
Online Information And Database Access And Retrieval Services (OIDAR Services)
For a service to be qualified as OIDAR, it should follow the conditions mentioned below:
- Delivery of service through the internet
- The supply of services should involve minimum human interference and only mandated through information technology
If any of the above conditions are not fulfilled, then the service is not OIDAR service. Following services is a part of OIDAR mentioned in the GST book and any freelancer working for the stated services will have to register on the GST web portal.
- Online advertising of the products and services
- Online gaming services
- Cloud-based services like provisions e-books, sharing and storing of data and information
Online game streaming services
Composition Services Under GST
As a relaxation to the companies with turnover less than Rs. 1 crore, they are required to pay GST at a flat rate of 1-5 per cent of their annual turnover based on the businesses being conducted. Companies involved in services other than restaurant services are not allowed to register as composite dealers and cannot take the advantages of the scheme. As a freelancer, you are offering services to the vendors and clients, and you cannot register as a composite dealer.
Documents Required For New GST Registration
As discussed above, if you are offering the services stated under OIDAR or have a turnover of more than 20 Lacs, then you should register in the Good and Services Tax web portal. Following documents will be required for the registration process:
- A copy of PAN and Aadhaar card
- Latest bank account statement or cancelled cheque
- Identity and address proof
- Digital signature
- Telephone or electricity bill
- The rental agreement for office premises
GST Slabs For Freelancers
The gst slabs in india applicable for freelancers depend upon the services being offered. Currently the GST slabs in India are 0%, 5%, 12%, 18% and 28%. If the service being offered is not specified, then you will have to charge 18% interest rate from the clients.
Invoicing Rules For Freelancers
The rules for filing the invoices by freelancers are similar to other services providers. The invoices raised should be GST compliant with complete details regarding name, address, GSTIN of the service provider and the recipient, value of service provided, start and end date of contract and SAC of services.
The invoice should be raised within 39 days of delivering the service and payment term discussed with the client should be mentioned in the invoice. Without following the rules stated for invoicing, freelancers cannot submit the invoices.
Input Tax Credit For Freelancers
Input tax credit or ITC is the taxation term under which a taxpayer can reduce the input taxes form the output taxes. Consider a retailer who purchases goods from the vendors and sells it to the people. The tax paid by the retailer while purchasing the products from the vendors is known as input tax and the tax collected by making sales is known as output tax.
Earlier it was not possible to claim the input tax credit for central sales tax, entry tax and luxury tax. But under the GST regime, all the registered taxpayers can avail ITC to reduce the GST liability.
A registered freelancer who is paying taxes to use the services with the purpose of providing any service can claim ITC.
GST Returns For Freelancers
A freelancer registered as a regular taxpayer will have to file 25 GST returns in a year. A monthly summary return under GSTR 3B has to be submitted by the freelancer after paying the applicable taxes. The GST rate applicable for the service being provided should be complied with to prevent rejection of the returns.
Late Filing Of GST Returns And Penalties
As a service provider, every freelancer should adhere to the guidelines of registration and filing the GST returns. Non-adherence to the rules can result in below-stated fines and penalties:
- Non-compliance to the registration process can attract a penalty of Rs. 25,000
- Late payment of GST return will cause an Rs. 100 fine per return per day
- Short payment of GST may attract a penalty of 10% of the tax amount or a minimum of Rs. 10,000
- Any fraud caught by the tax authorities in filing the GST will attract 100% of the tax amount evaded by the application
GST is an innovative step by the government of India to support the organisations and service providers with simpler taxation rules and easy filing of returns. The implementation of nationwide GST has resolved many challenges that organisations and freelancers faced while getting the returns processed.
Thoroughly explained tax norms and guidelines help the people involved in freelancing services to ensure they understand the GST rules and follow the rules.