Be it an enterprise or small and mid-sized firms, the Goods and Services Tax (GST) has touched every sector of India’s economy. And, yes, even freelancers fall under its radar, but they may or may not have to pay GST.
Freelancers who provide services must procure GST registration and pay 18 percent tax if their annual income exceeds the threshold of Rs 20 lakhs.
As a freelancer, even if you are off the hook from GST, it’s always crucial to know the chapters and verses of tax, because you will have to register once your business grows. In this article, we have tried to clear the air and simplify the complexity around this subject.
What constitutes freelance income?
Income tax laws in India state that any revenue generated by an individual by implementing their intellectual or manual skills is considered an income from profession.
The revenue of a freelancer depends on their assignments and mainly are contract-based tasks for companies and organisations.
You can be anyone from the following: An independent blogger, Vlogger, Digital Marketer, Social Media Manager, Consultant, Web Developer, Designer, Photographer, etc, to qualify as a freelancer for taxation purposes.
As a freelancer, you provide a service. For example:
- Freelance writer – There are different types of writing jobs that are in demand globally, and many companies like to outsource their work from well-established freelancers. Copywriting, public relations marketing, guest blogging, e-books, ghostwriting are a few in-demand jobs
- Freelance web developer – If you have all the necessary skills, then this job is for you. With the advent of the internet, businesses have gone online and are hungry to have a digital presence, but they want it quick. The demand for websites doesn’t seem to stop, and this is where you play your part
- Graphic designer – Another ball game that’s in huge demand! Many brands, weddings, concerts, events, promotions require the expertise and creative craftsmanship to stand out of the crowd
- Freelance photography – Do you remember your DSLR friend in college? Yes, the one who was always busy clicking pictures, refining skills in unusual places, looking for that angle, posture, view and whatnot. That friend of yours jumped in the game early, and perhaps is one of the most-demanded shutterbugs for weddings, concerts, events and more. Photography, like graphic design, is a vast subject where one can choose their speciality
- Digital marketing – Odin’s speech was the sole reason behind Thor’s realisation that he was a ‘God of Thunder and not hammers. Well, sometimes enterprises or businesses need an upper hand as well. Someone who’d tell them where they are failing, develop new strategies, introduce new techniques and fortify their marketing plan. For example, search engine optimisation, paid promotions, influencer marketing, content marketing, distribution, they all fall under this exceptional division
The Government of India has determined that there are circumstances in which these professionals and freelancers are required to pay GST. And the income you earn is the sum of all receipts that you get from your clients.
How is GST different from income tax?
Here are the major differences between GST and income tax:
|Levied on consumption||Levied on income or profit|
|Multi-stage tax levied at each stage of the supply chain||Levied once a year on the gross income minus eligible savings|
|GST has five tax slabs: 0%, 5%, 12%, 18% and 28%||Income tax has four slabs: 0%, 5%, 20% and 30%|
|Filed quarterly or monthly||Filed annually|
|Freelancers providing services with an annual turn of Rs 20 lakh need to register for GST||The annual threshold for income tax payment is ? 2,50,000|
|The input tax credit allows taxpayers to claim a refund of the tax||Refund can be claimed on TDS deductions on payments received|
Who should register for GST?
According to the GST law, it’s compulsory to register under the following situations:
- Only when the annual income crosses the limit of Rs 20 lakhs
- When income crosses Rs 10 lakh (only applicable for freelancers in the North-Eastern states)
- If you are a freelancer who runs an online business (blogger, social media strategist, programmer, etc). This requirement falls under the Online Information and Database Access and Retrieval services
- Export of service – For instance, you have an international client, and the payment received by you is in foreign currencies. After converting the money to INR if the amount exceeds Rs 20 lakh then you are liable to register for GST
What are the benefits of registering for GST?
With a number of relaxations, freelancers and professionals have benefited from GST. Here are some of the advantages of registering for GST:
- Eliminates cascading effects of tax
- Less tax and compliance burden
- Easy online registration
- Less number of compliances
- Revised and defined compliances for the e-commerce sector
- Reformed efficiency of logistics
- All unorganised sectors are now regulated under GST
What are the documents for GST registration?
- Your photograph
- PAN and Aadhaar card
- Identity and address proof
- Bank account statement or cancelled cheque
- Your digital signature
- Electricity or telephone bill
- The rental agreement for office premises
- No objection certificate
Here’s the one-stop solution for easy GST registration.
How to file GST returns online?
Depending on the type of business, every registered party is bound to file monthly, quarterly or annual GST returns. Keep your GST compliant sales and purchase invoices handy to file GST returns. Oh yes, registering a GST account online is free.
Here’s a step-by-step process for you:
Step 1: Go to the GST portal – www.gst.gov.in
Step 2: Depending on your PAN and state code, you will receive a 15 digit identification number
Step 3: Upload your invoices
Step 4: For every invoice, you will receive a reference number
Step 5: Also, file outward, inward and cumulative monthly returns
Step 6: Click the tab ‘Information’ on the GST portal
Step 7: File outward supply returns in GSTR-1 form before the 10th of every month
Step 8: You can find more details of outward supplies in GSTR-2A
Step 9: Now recheck and validate your details
Step 10: Visit form GSTR-2 and fix your details of inward supplies of taxable goods and services
Step 11: Details of inward supplies provided by the recipient in GSTR-1A form can be accepted or rejected by the supplier
Also, you have the option to rectify any errors and refile the returns.
What is the penalty for late filing of returns?
- A late fee of Rs 200 will be levied
- An interest of 18% per annum will also be levied. This will be calculated by the taxpayer on the tax to be paid
- A minimum penalty of Rs 10,000 will be levied if the tax has not been paid
- For the unpaid tax maximum penalty is 10%
How to claim GST refund?
Here’s a quick brief:
- You can file GST RFD-01 within two years from the date of export services
- Specific people will review the form, and you will receive an acknowledgement mail within 15 days
- If your claim is approved refund will be initiated within 60 days
What is a holistic solution for freelancers to accept online payments?
We are more excited than ever to announce the launch of our much-awaited product – Razorpay for Unregistered Businesses. Whether you are a freelancer, teacher, boutique owner or a professional, now accepting payments is going to be easier than ever. We promise!
Suggested read: How freelancers can accept payments online.