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.
Even if you are off the hook from GST as a freelancer, it is important to know the chapters and verses of how GST works; because you will have to register your business under GST once it grows.
Definition of a Freelancer under GST
A freelancer is an individual who provides services on a contract basis. They are not employed by a company and are not subject to the same employment laws. The GST rules relating to service providers shall also apply to freelancers.
What is the GST Registration limit for a freelancer?
As a service provider, a freelancer is required to mandatorily register under GST in the following situations:
- When turnover exceeds Rs 20 lakh in a financial year (For states other than the North-Eastern States)
- When turnover exceeds Rs 10 lakh in a financial year (For North-Eastern states)
- For services covered under Online Information and Database Access and Retrieval services (OIDAR services*)
- In case of an export service whose value exceeds Rs 20 lakh.
According to the GST Act, OIDAR services include the following services:
- Providing cloud-based services
- Advertising on the Internet
- Online gaming services
- Provision for selling e-books, music, movie, software and other intangibles via the internet.
- Providing data or information, retrieval or otherwise to any person in electronic form through a computer network.
Related read: GST State Code List
Can a freelancer register as a composite dealer?
As per the provisions of the GST Act, any service provider is not allowed to opt for the composition scheme. However, a service provider providing restaurant services is an exception to this rule.
So, this means that a freelancer cannot opt for the composition scheme.
If you want to know the merits and demerits of the composition scheme, you can read about GST Composition Scheme.
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
Which GST rates are applicable to freelancers?
The GST rates applicable to freelancers are 0%, 5%,12%, 18% and 28% depending on the type of service provided. If there is no specified rate for the service provided, you will have to charge 18% GST from your clients.
If you’re wondering how to include profit margins to your freelance services and get real-time GST inclusive & exclusive rates you can check out our free GST calculator.
Invoicing rules for freelancers
Any invoice raised by a freelancer should be GST-compliant. 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. You can refer to our GST invoice guide and create GST-compliant invoices using Razorpay Invoices.
Is a freelancer eligible to claim input tax credit?
Input tax credit (ITC) means you can reduce the tax, which was already paid on purchases, from the GST payable arising from your sales. As per the provisions of GST, all the normal taxpayers registered under GST can use ITC to reduce their GST liability.
Similarly, a registered freelancer can also use such taxes paid on services used by him for the purpose of providing any service.
For instance, a freelance photographer charges Rs 2,50,000 for a wedding shoot and hired a printing agency at Rs 50,000. In this case, the net GST payable will be as follows:
How many GST returns does a freelancer have to file?
A freelancer will have to file 25 GST returns filing in a year if he is registered as a normal taxable person.
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, the maximum penalty is 10% of the tax amount due.
Other resources for Freelancer
- Freelancer Payment Guide
- Income Tax Guide For Freelancer
- Freelancer Agreement Guide
- Freelancers copyrights, Trademark and patents