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GST FOR INDIAN FREELANCERS: ENFORCEMENT AND COMPLIANCE

Confused about complicated laws? Take our GST advice service from GST experts to solve your problems. Contact Alliance Tax Experts on 9769201316

The rules for GST are the same for individual freelancers as well as partnerships, LLPs, companies, etc.

The same rules apply to self-employed professionals who then serve a single client or multiple clients.

REQUIREMENT OF REGISTRATION UNDER GST

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

You do not need to register whether you are serving in the state, another state or outside India. Registration is mandatory if the sale is made in another state (inter-state). This rule only applies to the sale of goods and not to the sale of services. (Information No. 10/2017 - IGST).

Some people are confused as to whether this limit should be increased to Rs. 40 lakhs per year. But it is only increased for goods, for services it is still Rs. 20 lakhs.

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

2. When you provide services more than Rs.  20 lakhs in a financial year - In such cases, registration is mandatory. Even if you provide all your services outside India (100% export of services), registration is mandatory for you.

Register under GST and get GSTIN using Alliance Tax Experts service Contact 9769201316

Documents required for GST registration

• Your photo

• A copy of your PAN and Aadhar card

• Proof of identity and address

• Latest bank account statement or cancelled check

• Electricity bill

• Registered Lease agreement for office space

• No Objection Certificate

VOLUNTARY REGISTRATION - EFFECTS AND BENEFITS

An individual can register for GST even if his turnover is less than Rs 20 lakh.

If a person voluntarily registers, all the provisions of GST will also apply to him. In other words, he has to collect and pay GST, file returns etc.

Voluntary registration is beneficial when a person has to spend more on which GST has to be paid. For example, if a company advertises on Google to get new clients, 18% GST is charged in such cases. If such a company is not registered then no claim can be made on such GST. However, if such a company is registered, it can claim a GST credit which can then be used to offset the GST liability and apply for a GST refund (subject to certain conditions).

GST RATES ON FREELANCING

The GST rate is based on the type of services provided. The GST rate for the following types of services is 18%:

·       Accounting/bookkeeping

·       Software/app development

·       Technical Services

·       Call Centre or customer service

·       Data Entry

·       Designing services

·       Marketing Services

·       Domains and hosting

·       Voiceover

·       Language translation

·       Management / Consulting Services

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

SERVICE EXPORT

For export of services, if you have filed a Letter of Undertaking (LUT), you do not need to charge GST. If you have not filed LUT, you will have to pay GST and after that, you can apply for a refund of GST by filling up the GST Refund Form. LUT is a very simple form that does not require much detail, so it is advisable to file a LUT instead of going the return route.

Prerequisite for Export of Services: -

·       The customer is located outside India

·       The person providing the service is in India

·       Payment must be received in convertible foreign currency.

This does not mean that you must have foreign currency in your bank account. Normally, the bank receives the payment in dollars and convert it into Indian Rupees and transfers it to your account. It will also be considered a foreign currency receipt but you need to have Foreign Inward Remittance Certificate (FIRC) for the transaction.

Provide services through Upwork, Fiverr, Freelancer, Guru Etc. 

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

THE TAXABILITY IS AS FOLLOWS

• When the client is outside India -> it will be considered an export of services. Make sure you have FIRC for remittances received through up work or Freelancer.com. Generally, online platforms offer direct bank transfer options in India for quick payouts but they do not provide FIRC. We advise you to pay by wire transfer or using PayPal as they provide you FIRC which is a very important document to prove the export of services.

• When the client is within India -> the service will not be considered an export because the client is in India and GST is applicable on such transactions.

If the services are provided by any marketplace, the responsibility of collecting GST rests solely with the freelancer. The marketplace has no role in terms of GST.

FOREIGN INWARD REMITTANCE CERTIFICATE (FIRC)

You must have a FIRC to prove that the payment was received in a foreign convertible currency, which is a prerequisite for handling services as exports.

The FIRC is provided by your bank (in case of wire transfer). The bank emails you FIRC while crediting the wire transfer to your account.

If payment is received through an international payment gateway such as PayPal or Pioneer or Stripe, you will need to collect a FIRC from this payment gateway. Payoneer and Stripe give you FIRC with payment. Since February 2021, PayPal has started offering your FIRC free of charge for all your payments.

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

COMPOSITION SCHEME

There is a composition scheme for service providers with a turnover of less than. Rs. 50 lakhs. In this plan, you can pay GST at the rate of 6% (i.e. usually 18%) instead of the GST rate applicable to the service provided by you but you cannot avail the benefit of an input tax credit.

Also, if you are serving a person in another state or another country, you cannot register under the composition scheme.

INVOICING

The general invoicing rules apply to freelancers. In other words, there are no special requirements for freelancers. The invoice should contain all the necessary information like name, address, GSTIN of the service provider as well as the recipient, SAC of the service, date, and value of the service rendered etc.

If you are issuing invoices for services provided outside India under LUT and thus do not charge GST, then you have to mention "Export of Services without paying GST under LUT filed on March 19, 2022, with ARN AC080421001249S".

From 1 April 2021, if you are issuing invoices to another business with a GST number, it is mandatory to write Service Accounting Code (SAC) in such invoices.

FOREIGN EXCHANGE FOR SERVICES

Generally, when you provide services to clients outside India, the currency is raised in foreign currency. However, when filing a GST return, you need to register your income in Indian Rupees. In such cases, we advise you to follow the procedure below: -

Raise invoices in foreign currency for your clients.

Convert the invoice to Indian Rupees using the conversion rate applicable to the 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 the Foreign Exchange tab will do).

Use the above-converted value for reporting GST returns as well as for your bookkeeping purposes.

Once you receive the actual transfer, book the difference between your books in the Exchange Gain / Exchange Loss account (direct expense).

Note - No GST is payable on exchange profit or exchange loss.

INPUT TAX CREDIT

The input tax credit is the amount of GST that is paid on the purchase and is thus allowed as a deduction from the GST payable to the government.

There are no special provisions for an input tax credit for freelancers. They can take an input tax credit of GST paid on all business purchases like rent, telephone bills, computers, laptops etc. on which ITC is not allowed such as the purchase of motor vehicles, food bills etc.

GST RETURNS AND PENALTIES

There are no special provisions regarding GST returns for freelancers. Individuals with a turnover of up to. Can file Rs. 5 crores GST returns every quarter. Two returns GSTR-1 and GSTR-3B are to be filed on a monthly or quarterly basis. The late fee for the late filing of this return is Rs. 50 per return per day.

Annual returns are also required to be filled in the GSTR-9 form (this is optional for individuals with a turnover of up to Rs 2 crore for the years 2017-18 to 2019-20). The Delay fee for late filing of GSTR-9 is Rs. 200 per day.

Taxpayers with an annual turnover of more than Rs. 10 crores are also required for CA to audit their accounts and file GSTR-9C. (The limit for the financial year 2018-19 and 2019-20 has been increased to Rs. 5 crores.) The penalty for non-audit of accounts is Rs. 50,000.

GST REFUND

If you are involved in exporting services, the GST Act allows you to get a GST refund in your bank account for the following: -

1.     On input services/goods used to provide service exports or

2.     GST is levied on the export of services and paid to the government.

The most important conditions for claiming a GST refund are: -

1.     RC FIRC to prove export of services.

2.     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 (TCS)

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

Freelancer. Is registered in India and is thus responsible for collecting TCS at the rate of 1% of the amount paid by them. However, it must be collected only from persons registered for GST.

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

FREQUENTLY ASKED QUESTIONS

Is GST applicable to freelancers?

GST applies to freelancers with a turnover of more than Rs. 20 lakhs. (Rs. 10 lakhs in the case of Northeastern States). GST is mandatory even if you only serve customers outside India (100% export of services). GST is also applicable if a freelancer has voluntarily registered.

Does a freelancer need to get GSTIN?

Registration is required if the turnover of freelancers is more than Rs. 20 lakhs (Rs. 10 lakhs in case of Northeastern States).

How can a freelancer get GSTIN in India?

Freelancers can get GSTIN by registering under GST on gst.gov.in. You can hire professionals like Alliance Tax Experts to do this for you.

Should I charge GST as a freelancer?

You can file a Letter of Undertaking (LUT) every year and then there is no need to charge GST for the export of services. GST is levied on services rendered to Indian consumers.

What is the GST rate on freelancers?

The GST rate depends on the nature of the services provided. GST rate of 18% applies to freelancing services like software development, accounting, data entry, designing services, technical services, customer support etc.

Is Import Export Code (IEC) required for exporting services?

No, the IEC code is not mandatory for the export or import of services. This is mandatory only when you want to claim the benefits of the SEIS scheme or if you are providing services related to national security.

Confused about complicated laws? Take our GST advice service from GST experts to solve your problems.

Contact

Santosh Patil ICA & MBA

9769201316

santoshpatil@alltaxfin.com

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