The outbreak of the Pandemic has changed the world in many ways. Work from Home Culture is the new normal and freelancing has seen a big demand for the last 3 years. Freelancers are not only tied up for certain projects but they are tied up with certain companies too. This often creates confusion about whether GST is applicable or not for the services provided.
Here are FAQs on the GST implications for a Freelancer
1. Are Freelancers liable for GST Registration?
I. GST registration is mandatory if the threshold limit of turnover crosses Rs 20 lakhs. for general cases and Rs 10 lakhs for special category States.
II. When the services are Online Information Database Access and Retrieval Services (OIDAR)
2. Should Freelancers Register if they are Exporting Services?
As per section 24 of CGST Act 2017, an individual who earns an income by the way of export should mandatorily register under the GST Act even when the turnover of services does not cross the threshold limit.
As per section 2(6) of IGST Act, services provided by the freelancers to any person located in foreign countries shall be considered as an export of services if the following conditions are satisfied-
- The location of freelancer is in India
- The location of the recipient is outside of India
- Place of supply of services is outside of India
- Payment for services was received in convertible foreign currency
- Freelancers and the recipient of service are not merely establishments of a distinct person. if the place of supply is out of India.
Registered freelancers have two options to export services in the GST regime.
- Option 1: Export services without payment of tax under bond or letter of undertaking (LUT)
- Option 2: Export services with payment of tax and later claim a refund
3. What are Online Information Database Access and Retrieval Services (OIDAR)?
Online information database access and retrieval services is a category of services provided through the medium of internet and received by the recipient online without having any physical interface with the supplier of such services.
The following Services are considered are as OIDAR Services:
I. Advertising on the Internet.
II. Providing Cloud-based services. Example: Google Drive, icloud
III. Providing e book, music, streaming of movies, software, other intangibles through telecommunication networks. Example: Amazon Kindle, Netflix.
IV. Online Gaming
4. What shall be the Place of Supply?
The place of supply would be the location of the service recipient.
5. What are GST Rates Applicable?
The GST rates Applicable to freelancers are 0%, 5%, 12%, 18% and 28%. The services will be taxed as per the respective slab rates. If nothing is specified then it shall be taxed at 18%
6. Are Freelancers liable to File Returns?
Once the Freelancers are registered under the GST Act it is a mandate for the Freelancers to file the monthly returns i.e GSTR1 and GSTR 3B. If they have not opted for the QRMP scheme. If the QRMP scheme is opted the returns shall be filed quarterly but the payment of GST liability shall be made on monthly basis in Challan PMT 06 as per self-assessment or on a minimum of 35 percent of the total tax liability to avoid the interest liability.
7. Should the Freelancer raise an invoice for the service provided?
Yes freelancer shall raise an invoice for the service provided and shall be as per GST laws.The invoice should contain name, address, GSTIN of the supplier as well as the recipient, SAC of services, date, value, and signature.
8. Are Freelancers eligible for input?
Yes freelancers are eligible for input like any other registered service provider.
9. Can a Freelancer opt Composition Scheme?
Yes. A composition scheme is an optional scheme of levy of tax available for small taxpayers in the GST regime. Earlier, the scheme was available to only the suppliers of goods. However, notification no 2/2019-Central Tax (Rate) notified the composition scheme for the supplier of service also from 1 April 2019. Under this scheme, tax is levied at a reduced rate with fewer GST compliances.
Service providers having an annual turnover of less than Rs 50 lakhs can opt for a composition scheme in GST. Freelancers opting for a composition scheme are required to pay GST at a rate of 6% subject to certain conditions & restrictions.
10. What are the penalties for defaulting freelancers?
When a freelancer fails to register under GST, he shall be liable to pay penalties. The penalty for not registering goes upto INR 25,000, and a penalty of INR 100 to the maximum of Rs 10000 (Rs 5000 CGST and Rs. 5000 SGST)would be applicable for not filing GST returns.
As per the provisions of GST, in case a registered person fails to file GST returns for three consecutive periods, the registration can be suspended. In such a situation, the freelancer cannot undertake any business activity until the suspension is revoked.
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