GST on Indian Freelancers

A Freelancer is a service provider who supplies services mostly on contract basis, hourly basis & in any periodic frequency etc. They provide these services directly to a client in India or through some online platform (like Upwork, Freelancer etc) or even directly to a client outside India. It includes professional services like website development, application development, designing, management, accounting & consultancy etc.

Rules for GST are same for individual freelancers as well as partnership firms, LLP, Companies etc. These same rules apply to self-employed professionals whether providing services to a single client or to multiple clients.

Registration Requirement under GST

1. When you are providing services of up to Rs. 20 lakhs in a financial year – In such a case you are not required to register under GST in any case and therefore not liable to collect GST.

You are not required to register whether you are providing services within the state, another state or even outside India. The rule that if sales is made in another state (inter-state) then it is required to register mandatorily is applicable only on sales of goods and NOT on sale of services. (Notification no. 10/2017 – IGST)

Note – Some persons get confused whether the limit gets extended to Rs. 40 lakhs per year but it is extended only for goods, for services it is still Rs. 20 lakhs.

The above mentioned limit of Rs. 20 Lakh is reduced to Rs. 10 lakhs for persons who are registered in following north-eastern states: –

• Uttarakhand
• Arunachal Pradesh
• Assam
• Jammu & Kashmir
• Manipur
• Meghalaya
• Mizoram
• Nagaland
• Sikkim
• Tripura
• Himachal Pradesh

However, you can register voluntarily under GST for claiming back GST paid on input services used. You can not only claim it back but can get a cash refund (just like income tax refund) of the GST paid  on input services used for export of services.

2. When you are providing services of more than Rs. 20 lakhs/10 lakhs in a financial year – In such a case, registration is mandatory. Even if you are providing all of your services outside India (100% Export of services) still registration is mandatory for you. You are required to file LUT (more details in next couple of paragraph) so you do not pay GST on export of services and have to file GST returns.

Get registered under GST and get GSTIN using TaxAdda GST Registration Services

Documents required for GST registration

• Your photograph
• Copy of your PAN and Aadhaar card
• Identity and address proof
• Latest bank account statement or cancelled cheque
• Your digital signature
• Electricity or telephone bill 
• The rental agreement for office premises
• No objection certificate

Voluntary registration – Effect and Benefits

A person can take registration in GST even if his turnover is less than Rs 20 Lakh / Rs 10 Lakh (in north-eastern states).

If a person takes voluntary registration, then also all provisions of GST will apply to him. In other words, he is required to collect and pay GST, file returns etc.

Taking voluntary registration is beneficial in cases when a person is incurring heavy expenses on which GST is payable. For example: A company gives ads on google for getting new clients, GST of 18% is payable in such cases. If such a company doesn’t get registered, then such GST cannot be claimed. However, if such a company takes registration, it can claim GST credit which can be used later for offsetting GST liability and may apply for GST refund (subject to certain conditions).

Types of GST Registration

A person can get registered under GST with a Regular Scheme or opt for Composition Scheme. Regular scheme does not have any limitation. However, under Composition Scheme, a person cannot make inter state sales or have a turnover exceeding Rs 50 Lakh in a year. If he violate any of the above conditions, then he has to mandatorily shift to Regular Scheme of GST.

Regular Scheme

Under Regular Scheme, a registered person charges GST (i.e. commonly 18%) from the customer and pay it to the Government. At the same time, the customer can claim the input tax credit for the GST paid to the supplier of the services. In this scheme, a registered person can provide services in another state or even in another country without any restriction on the annual turnover.

Composition Scheme

There is a composition scheme for service providers having turnover of less than Rs. 50 lakhs. In this scheme, you can pay GST at a rate of 6% in place of applicable GST rate on the service provided by you (i.e. commonly 18%) but you can not take the benefit of input tax credit. You cannot charge this 6% GST from your customer and have to pay from your pocket. At the same time, your customer cannot get the GST credit as you cannot bill this to your customer. Generally, this scheme is beneficial to small service providers, who are giving services to unregistered local customer like dry cleaners, saloon, etc.

Note – if you provide service to a person in another state or in another country, then you cannot register under the composition scheme.

GST Rate on Freelancing

GST rate is applicable on the basis of the type of services provided. GST rate is 18% for following types of services for regular scheme:

• Accounting/Bookkeeping
• Software/App Development
• Technical services
• Call center or customer care
• Data entry
• Designing services
• Marketing Services
• Domain and hosting
• Voice over
• Language Translation
• Management/Consultancy Services

GST rate is 18% for almost all services provided via internet. You can also look for GST rate on government official website at https://cbic-gst.gov.in/gst-goods-services-rates.html

Input Tax Credit

Input tax credit is the amount of GST which is paid on purchases (directly to suppliers) and thus allowed as deduction from the GST payable to the government.

Freelancers, like any other taxable person under the GST, are allowed to take the input tax credit of the services/goods used by them for the purpose of rendering services. They can claim input tax credit for the GST paid on purchase of fixed assets like laptop, office equipment, furniture etc along with consumable services like internet, telephone, rent etc to provide service to their clients. In case of export of services you can either use input tax credit in discharging the GST payment liability or you can file LUT & claim input refund in form GST RFD-01.

Further, 18% GST charged by the freelancer can also be taken as input by the recipient of service.

Note: – Some purchases on which ITC is not allowed are purchase of motor vehicles, meals, construction materials etc.

Invoicing

General invoicing rules are applicable for freelancers. In other words, there are no special requirements for freelancers. The invoice should contain all the necessary information such as name, address, GSTIN of the service provider as well as the recipient, SAC of services, date, the value of service provided and so on.

If you are issuing invoice for services provided outside India under LUT and thus not charging GST, then you have to mention in invoice “Export of Services without payment of GST under LUT filed on 19th March 2021 having ARN AD080421001248J“

Beginning from 1st April 2021, If you are issuing invoice to another business having GST number then it is mandatory to write Service Accounting Codes (SAC) in such invoice. 

Freelancers often use Proforma Invoice to provide a quote or an estimate to their clients & issue the Final Invoice once the contract is finalised.

Foreign Currency Invoice for Freelancing Services

Generally, the invoice is raised in foreign currency when you provide services to a client outside India. However, at the time of filing GST returns, you are required to report your income in Indian Rupees. In such case, we suggest you to follow below procedure: –

1. Raise invoice for your client in foreign currency.
2. Convert the invoice in Indian Rupees using the applicable conversion rate as on date of invoice approved by RBI which is available on this website – https://www.fbil.org.in/#/home (you can find the exchange rate once you click on Foreign Exchage Tab).
3. Use the above converted value for reporting in GST return as well as for your bookkeeping purpose.
4. Once you receive the actual transfer, book the difference to Exchange Gain/ Exchange Loss account (direct expenses) in your books.

Note – No GST is payable on exchange gain or exchange loss. TDS is also deducted @ 1% u/s 194O by online platform (e-commerce operator like Upwork etc.) from the gross amount received from the sale of service under Section-194O of Income Tax Act, 1961.

Click here to download proforma invoice in foreign currency for Freelancers.

Export of Services

For export of services, you are not required to charge GST if you have filed Letter of Undertaking (LUT). If you have not filed LUT then you have to charge GST, and thereafter you may apply for refund of such GST paid by filing GST Refund forms. LUT is a very simple form which doesn’t require many details, so it is advised to file LUT rather than going for the refund route.

Prerequisite condition for export of services: –

1. Client is located outside India.
2. Person providing services is located in India.
3. Payment must be received in convertible foreign currency. This doesn’t mean you must receive foreign currency in your bank account. Generally, payment is received in dollars by bank and they convert it to Indian rupees and transfer to your account. This will also be considered as an amount received in foreign currency but you must have Foreign Inward Remittance Certificate (FIRC) for the transaction. Read below for more details.

Providing Service through Upwork, Fiverr, Freelancer, Guru etc.

There is no difference in provisions of GST if services are provided via online marketplaces like Upwork, Fiverr or Freelancer.com etc. or provided directly to clients.

Taxability is as under

1. When the client is located outside India -> It will be considered as an export of services. Make sure you have FIRC for the remittance received via Upwork or Freelancer.com. Generally online platforms provide options for direct bank transfer to India for faster payout but they do not provide FIRC. We suggest you take payment via wire transfer or using PayPal/Payoneer as they provide you FIRC which is a very important document to prove export of services.
   
2. When the client is located inside India -> It will not be considered as an export of services as the client is located inside India and GST is applicable on such transactions.

Note: If services provided via any of the marketplace then liability to collect GST is on the freelancer only. The marketplace does not have any role in regards to GST. So, if you are registered under GST and providing service to an Indian client via Upwork then you are required to charge GST on the transactions.

Reverse Charge Mechanism (RCM) under GST for Freelancers

In case a person is providing services to foreign clients through online platform likes Upwork, Freelancer etc, the person need to register under GST (irrespective of the turnover) as he is liable to pay RCM on the service fees charged by these platforms. As the services provided by the these platforms will be considered as import of services (these services does not fall in the ambit of intermediary services as mentioned in IGST act).

Note: The Upwork commission falls under RCM as Upwork does not charge GST on its service fees. Similarly, if you are using any payment service provider like Payoneer, who does not charge GST on the service charge then the person is liable to discharge the GST under RCM.

Foreign Inward Remittance Certificate (FIRC)

You must have FIRC to prove that the payment has been received in foreign convertible currency, which is a necessary condition for treating it as an export of services. 

FIRC is provided by your bank (in case of wire transfer). Generally the bank emails you FIRC at the time of crediting wire transfer into your account. 

If the payment has been received by international payment gateways like Paypal or Payoneer or Stripe etc then you have to collect FIRC from these payments gateway. Payoneer and Stripe provide you FIRC along with the payment. Beginning from February 2021, PayPal has also started to provide your FIRC freely for all of your payments.

Also, if you are applying for refund of GST, FIRC is a compulsory document without which you will not be able to get refund of GST paid at the time of export of service or refund of GST paid on input services used in export of service.

Electronic Bank Realisation Certificate (eBRC)

A Bank Realisation Certificate (BRC) is a document that serves as verification of a company’s international exporting activities. This paper is essential for a client who wishes to trade benefits under the foreign trade policy in India.

The e-BRC is a digital version of the certificate. Now the Exporters can generate & self certify their BRC w.e.f 15 November,2023  Trade Notice 33/2023 dated 10-11-2023.

FIRC differs from e-BRC as it also includes the payment received from foreign countries for matters other than exports, such as personal foreign transfer, freight costs, consultancy, etc., on  the other hand e-BRC is issued for inward remittance related to Export business only.

Note – In case of refund for export of services, details of BRC are required to be submitted along with the application for refund. When exporters file a GST refund, in some cases they may be required to submit e-BRC also along with FIRC. You can claim a tax refund using the e-BRC if you are not able to receive FIRC from the bank .You must attach the e-BRC with the input tax refund application.

GST Returns and Penalty

There are no special provisions regarding GST returns for freelancers. Persons with turnover up to Rs. 5 crore can file GST returns on quarterly basis. However, if your turnover is more than Rs 5 crore then it is mandatory to file GST returns on monthly basis.

An annual return is also required to be filed in Form GSTR-9. This return is mandatory for the registered person have a turnover of above Rs 2 crore. Additionally, if the turnover exceeds Rs 5 crore, then a separate reconciliation statement is required to be filed in GSTR-9C.

You can learn more regarding the due date of GST return and late fees from our article Late Fees For Various GST Return.

GST Refund

If you are engaged in export of services then GST law allows you to get the GST refund into your bank account for the following: –

1. on the input services/goods used to provide such export of service or
2. GST charged and paid to the Government at the time of export of services.

The most important condition or claiming GST refunds are: –

1. FIRC to prove export of services.
2. The refund application has to be filed within 24 months from the end of the month in which such services are exported.

Read our article on GST refunds to know more.

Tax collected at source (TCS) under GST

Under Section 52 of CGST Act, e-commerce Operators are required to collect TCS from the persons selling goods or services through them. 

Freelancer.in is registered in India and thus liable to collect TCS at the rate of 1% on amount paid through them. Although, it is required to be collected only from persons who are registered in GST.

Upwork is also collecting 1% TCS from all the freelancers irrespective of registration under GST.

Read our article on TCS to know more.

FAQs