A freelancer refers to an individual who works independently from any organisation. The freelancers do not have any fixed income. He/She earns based on tasks or assignments undertaken by them. The duration of the assignment is generally a shorter period.
The freelancing or the gig economy has been on an uprise in India. Freelancing is a service-oriented business generally performed by professionals. Some of the popular freelancing activities are management consultancy, pitch deck presentation, voice-over artist, book-keeping, logo designing, etc. The advantages of having flexible work hours, reduced work pressure, choosing your work, and being your boss make freelancing a very attractive market. Today on average, we will find more women working as freelancers as compared to men. This is mainly because of the flexibility they get in maintaining a well-balanced home and work life and their desire to do what they love. Freelancers have to comply with various regulations just like other salaried or business class individuals to be tax compliant.
One of the most important compliances to be fulfilled by freelancers is that of GST. GST has become the backbone of every business in the Country. To have a fully compliant business, GST plays a major role.
However, there is a myth in the freelancing world that too many GST compliances have to be made by the freelancer. But this is not the case.
First of all GST registration is not mandatory for every freelancer. In the case of a service provider, GST registration is required if the aggregate annual turnover exceeds Rs. 20 Lakhs in a Financial Year. In the case of special category states, this limit is Rs. 10 Lakhs.
*Special Category States - - Uttarakhand, Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Himachal Pradesh*
However, a service provider can take voluntary registration if his aggregate turnover is below the threshold limit. If a taxpayer takes voluntary registration then all GST compliances like return filing, record maintenance, invoices, etc. will apply to him.
GST registration is mandatory irrespective of the turnover limit, in the case of an interstate supply of goods. In the case of the export of goods also, GST registration is mandatory irrespective of the threshold limit.
But, this mandatory provision of registration does not apply in the case of services. The Ministry of Finance vide its Notification No. 10/2017 - Integrated Tax dated 13th October 2017 provided an exemption to service providers. According to this notification, GST registration is not mandatory for suppliers who are making the interstate supply of services or export of services(export of services qualifies as “inter-state supply” under the IGST Act) if their aggregate turnover is less than the threshold limit as mentioned above. In case a service provider is providing Online Information and Database Access and Retrieval(OIDAR) services, GST registration is mandatory irrespective of the threshold limit.
In recent years, the number of freelancers providing their services on online marketplaces like Fiverr, Upwork, etc. has increased. These freelancers are required to comply with the same GST provisions as other service providers registered under GST.
Freelancers can also take the benefit of the GST composition scheme if their aggregate turnover does not exceed Rs. 150 Lakhs in a Financial Year. This limit is Rs. 75 Lakhs for special category states. Composition dealers are required to follow a very limited number of GST compliances like return filing on annual basis only, quarterly payment, cannot claim the input tax credit, issues bill of supply, reduced GST rate on their supply, etc.
The rates of GST applicable to freelancers may range from 0%, 5%, 12%, 18%, and 28%. However, most of the services will come under the tax bracket of 18%. The freelancers can take an input tax credit against the capital goods and inward services used for providing the outward services.
The registered freelancers are required to file their month/quarterly GST returns as applicable. They are also required to file their Annual Return and GST Reconciliation Statement if applicable.
Thus, GST registration is mandatory for freelancers in some cases but one can freely provide services without any GST compliances up to a certain amount of turnover.
Also Read: Regulatory compliances for Freelancers in India
The author is a Practicing Chartered Accountant with more than 6 years of experience in auditing, taxation, finance, etc. The constant endeavor to stay abreast of the latest technology and software in business management helps me in providing differentiated service offerings.
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