Rules for GST are same for individual freelancers as well as partnership firms, LLP, Companies.
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. 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.
This limit is Rs. 10 lakhs (which is generally Rs. 20 lakh) for persons who are registered in following north-eastern states: –
2. Arunachal Pradesh
4. Jammu & Kashmir
11. Himachal Pradesh
2. When you are providing services of more than Rs. 20 lakhs/10 lakhs in a financial year – In this case, there can be two conditions as below
(a) All services are provided outside India (Export of Services) – In such a case, registration is not required regardless of the value of services provided. If service of even Rs. 1 is provided in India then registration will be required.
(b) Service is provided outside India as well as in India – Registration is required in such a case.
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.
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). In such a case, all provisions of GST will apply to him.
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).
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:
- 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
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: –
- Client is located outside India
- Person providing services is located in India
- 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
- 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. 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 as they provide you FIRC which is a very important document to prove export of services.
- 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.
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.
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. Payonner 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.
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.
Also, if you provide service to a person in another state or in another country, then you cannot register under the composition scheme.
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 GSTIN then it is mandatory to write Service Accounting Codes (SAC) in such invoice.
Foreign Currency Invoice for 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: –
- Raise invoice for your client in foreign currency.
- 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
- Use the above converted value for reporting in GST return as well as for your bookkeeping purpose.
- 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.
Input Tax Credit
Input tax credit is the amount of GST which is paid on purchases and thus allowed as deduction from the GST payable to the government.
There are no special provisions for input tax credit for freelancers. Freelancers can take input tax credit of GST paid on all business purchases like rent, telephone bill, computer, laptop etc other than some purchases on which ITC is not allowed like purchase of motor vehicles, food bills etc.
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. Two returns are to be filed GSTR-1 and GSTR-3B on monthly or quarterly basis. Late fees for late filing of these returns is Rs. 50 per day per return.
An annual return is also required to be filed in Form GSTR-9 (it is made optional for year 2017-18 to 2019-20 for persons with turnover up to Rs 2 crore). Late fees for late filing of GSTR-9 is Rs. 200 per day.
Taxpayers with annual turnover of more than Rs. 2 crore are also required to get their accounts audited by a CA and file GSTR-9C. (Limit is extended to Rs. 5 crores for the financial year 2018-19 and 2019-20.) Penalty for not getting accounts audited is Rs. 50,000.
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: –
- on the input services/goods used to provide such export of service or
- GST charged and paid to the Government at the time of export of services.
The most important condition for claiming GST refunds are: –
- FIRC to prove export of services.
- The refund application has to be filed within 24 months from the end of the month in which such services are exported.
Tax collected at source 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.
However, Upwork and fiverr is not registered in India and not deducting any TCS at the movement.
GST is applicable on freelancers with turnover of more than Rs. 20 lakhs. (Rs. 10 lakhs in case of north eastern states). Also, freelancers who provide their services only outside India are not required to register in GST. If a freelancer registered voluntary then also GST is applicable on him.
Freelancers are required to get registered if their turnover is more than Rs. 20 lakhs (Rs. 10 lakhs in case of north eastern states. Also, freelancers who provide their services only outside India are not required to register in GST even if there turnover is more than 20 lakhs.
A freelancer can get GSTIN by getting registration under GST on gst.gov.in. You can hire a professional to do it for you.
You can file Letter of Undertaking (LUT) for every year and then need not charge GST for export of services. GST is to be charged on services provided to Indian clients.
GST rate is depended on the nature of services provided. GST rate of 18% is applicable on most of freelancing services like software development, accounting, data entry, designing services, technical services, customer support etc.