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Is GST Law Applicable to freelancers?

Are you a freelancer? And you are confused about whether to register for GST or not? Don't worry. We are here to help. The purpose of this post is to clarify many questions like who should register for GST, the benefits of GST registration and payment terms and conditions (T&C) related to freelancers.

Who needs to register for GST?

GST registration can seem like a lot of work. But did you know that this is not mandatory for everyone? Here are the conditions required for GST registration:

Your turnover is more than Rs.  20 lakhs in a financial year. For persons residing in Northeast India, the limit is Rs. 10 lakhs.

You receive payment for services under OIDAR (Online Information and Database Access and Recovery). OIDAR includes Internet advertising, cloud-based services and intangibles, such as e-books, entertainment (music, movies, online gaming), software and any other electronic data, such as video lessons.

Why is GST required for freelancers? What are its benefits?

As Goods and Services Tax (GST) is an indirect tax on the supply of goods and services in India, the turnover of Indian freelancers will also have to pay GST when it is more than Rs. 20 lakhs in a financial year.

As a freelancer, you do not get any special benefits from registering for GST. The benefits of GST registration are the same for everyone. Under the new GST rules, you have the option to file your tax return online. All you have to do now is go to the GST portal, create an account, log in and start filing your GST return. The customer or client is responsible for the additional cost.

The main advantage is that if you register, you will be able to claim GST credit, which can be used to balance future GST liabilities as well as to get a GST refund (subject to certain conditions). For example, if your firm runs ads on Google to attract new clients or customers, you will have to pay 18% GST on the total amount.

What are the disadvantages of filing a GST return?

The only disadvantages of registering for GST are some time-consuming activities like the GST registration process, keeping financial records, issuing invoices and submitting returns.

Documents required for GST registration

Here are the documents you need to register for GST:

1. Your photo

2. Copy of your PAN and Aadhar card

3. Proof of identity and residency

4. Recent bank account statement or cancelled check

5. Electricity or telephone bill

6. Office Lease Agreement

7. No Objection Certificate

What happens after GST registration?

After you have submitted all the required documents and completed all the required formalities, you need to make sure that you are following the procedure to stay on the right side of the law.

When raising invoices, you need to add the GST amount to the total amount billed. Thus, if your billed amount is Rs. 25,000 After adding GST at the rate of  18% for one client, the total amount your client has to pay is Rs. 29,500.

After collecting GST, when you file your GST return, you need to remit the amount of GST to the government.

Payment for Freelancer T&C

Different payment terms and conditions (T&C) apply to freelancers registered for GST.

GST rates on your services can be 0%, 5%, 12%, 18% or 28%, depending on the type of service you provide. If there is no specific percentage, you need to charge 18% GST from your client.

After getting your GST identification number, you will have to file regular, monthly and annual GST. This is regardless of your current annual turnover.

You must make all payments online. Each year, the file will have 25 returns: three monthly filings and one annual form.

If you do not deposit the GST amount on time, you will have to pay a penalty + interest also.

To ensure that GST is credited on time, you can issue invoices on the 1st of next month. This will give you enough time to pay your monthly GST bill.

After paying all applicable taxes, you are required to submit a monthly summary return under GSTR 3B.

For many freelancers, filing GST can be a little daunting. Hiring a Chartered Accountant (CA) or GST professional, a tax consultant with experience working with freelancers and solopreneurs will help you ensure that everything is in line with the latest applicable laws.

Do freelancers need to register for GST if they raise invoices?

•       If you are a freelancer, your clients will expect you to create the invoice. When you submit an invoice, your client can deduct 10% TDS from each invoice.

·       If your income is below 20 lakhs or Rs. 10 lakh (for Northeast residents), even if you create the invoice, registration for GST is not mandatory.

•       However, if you are registered under GST, your invoice should be as per GST Act.

•       You must include your name, address, your GSTIN, your client's GSTIN, Service Accounting Code (SAC), date, amount and signature on the invoice.

•       Necessary GST is added to the cost of your services and your client has to pay it. Then you have to pay the same amount to the government. This is a win-win situation for everyone because when your clients collect their taxes, they can claim it as a tax credit.

If your client does not want to pay GST, there is a high probability that they do not pay taxes or do not want to pay you. In that case, you may choose to stay away from these customers.

To sum it up

We have seen that GST registration for freelancers is required in some cases. You cannot hide your income from the government. They will find it from your client's deducted TDS or your bank payment. Since all your accounts are linked to PAN and Aadhaar, it would be best to go for GST registration. You can hire a Tax Consultant, GST Practitioner or CA to manage all your GST-related tasks.

Alliance Tax Experts is a one-stop solution for GST registration, GST Compliances and GST Returns services. Contact tax@alltaxfin.com or 9769201316

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