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.
What is GST registration?
According to the GST law, any unregistered business or goods supplier whose aggregate turnover exceeds the threshold limit as prescribed is liable to be registered under GST.
For significant parts of India, the limit is Rs. 40 lakhs. The limit is Rs. 10 lakhs for the North-Eastern States.
How is GST different from income tax?
Here are the major differences between GST and income tax:
|Indirect tax||Direct 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 (80C)|
|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||A 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!
GST for unregistered good sellers
Also, here are some of the most frequently asked questions about GST for unregistered good sellers.
- I’m a homepreneur, do I need to register for the GST?
According to the GST law, if you are a homepreneur and don’t meet the turnover threshold of Rs 40 lakh, then you need to register for GST in case of the following two instances:
- You make inter-state taxable supplies
- You provide goods and services on behalf of other registered taxable persons
- My online business is very small, should I register under GST?
According to GST laws, Section 19 r/w Schedule-III states that every form of online business needs to be registered under GST.
- What if I don’t register for the GST?
Well, if you are not registering under any sales-tax, then the Income Tax department will prosecute you under the laws.
Also, 10% of the tax amount will be charged and a wilful defaulter has to pay 100% of the tax amount due.
- What is a reverse charge mechanism?
In regular circumstances, any supplier of goods and services is liable to pay the Goods and Services Tax (GST). However, when the reverse charge mechanism is applied, the receiver of the goods becomes the party that is liable to pay the taxes.
The government has clearly spelt out a few instances in which the reverse charge mechanism is employed and understanding the same can help both businesses and individual customers understand their transactions in a more comprehensive manner.
The reverse charge becomes applicable in three main instances:
- Supply from an unregistered dealer to a registered dealer
- Services through an e-commerce company
- Supply of specific goods listed by CBIC
Under the GST regime, businesses are no longer required to obtain multiple Value Added Tax (VAT) registrations, but a centralised and single GST registration would be applicable across India.
Also, a standardised process of obtaining registration has eased the process of starting a new business in India. Let’s uncover the points and specifics of GST registration for businesses.
- What is meant by the cancellation of registration?
No rocket science here, it merely means that a taxpayer won’t be registered under GST anymore. But for businesses whose threshold crosses 40 lakhs and 10 lakhs (Only in Nort-Eastern states) and the registration is cancelled, it’ll be considered as an offence and penalties will be levied as per the laws.
If the threshold is below the norms, the taxpayer can apply online in FORM GST REG-29. Also, an enquiry will be issued by the designated officer and cancel the registration.
- How to check the GST registration status?
First things first, apply for GST registration on the portal, as the application takes 15 days to be processed, you will receive an Application Reference Number (ARN). But you can check the status online, here’s how:
Step 1: Open the GST portal
Step 2: Go to the services section
Step 3: Click on the registration tab (It’ll direct you to Track Application Status)
Step 4: Type your ARN number and for the response
Easy, isn’t it?
- How to change GST registration details of a business?
Sometimes businesses hurry the process of registration, or they might be new to the process, and mistakes happen.
So what do you do? If you need to change some of the crucial details while registering your business for GST?
Don’t worry. We’ve got you covered.
Name of the business, address, people involved in your business–CEO, partner, mobile number and email ID can be updated. All you need to do is to submit FORM GST REG-14 and verify it through the GST portal.
If you have entered a wrong Permanent Account Number (PAN) number, then a new registration using FORM GST REG-01 is the only available option.
Suggested read: Razorpay for unregistered business