GST for the Freelancers in India

Posted by on September 15, 2017 in Financial Matters | 0 comments

FREELANCERS EXEMPT FROM GST: There is good news for freelancers and small services providers in India who have an annual turnover of less than Rs. 20 lakh. I quote here one of the recommendations made by the GST Council in its 22nd Meeting held on 06 October 2017:

Relief for Small and Medium Enterprises
4. Presently, anyone making inter-state taxable supplies, except inter-State job worker, is compulsorily required to register, irrespective of turnover. It has now been decided to exempt those service providers whose annual aggregate turnover is less than Rs. 20 lacs (Rs. 10 lacs in special category states except J & K) from obtaining registration even if they are making inter-State taxable supplies of services. This measure is expected to significantly reduce the compliance cost of small service providers.

I believe, in the view of this what I posted below becomes irrelevant for many of us!

If you are a freelance writer, blogger, web developer, software expert, artist, translator etc. and earn an income online, you must be worrying whether to register for GST (Goods and Services Tax). In simple terms

  • If you earn up to Rs 20 lakh (Rs. 10 lakh for the north-eastern states) annually and all the clients for whom you are a supplier of service belong to the same state where your business is registered, you are not required to register for GST.
  • If your clients’ registered place of business is in some other Indian state or abroad, you should register your business or profession even if you earn a single rupee from the business.

So, probably, most of the freelancers who work online need to obtain GST registration because only rarely would it so happen that all your clients belong to the state where your business is registered. So even if your income is below Rs. 20 lakh, you may need to register for GST and file GST returns. The 20 lakh exemption is only for those who do business within their own states.

Do you have to register for GST if you have no clients in India and export your services solely to agencies or organizations abroad?

Yes, because export of services is considered as inter-state supply under the Act.

Section 7 of the THE INTEGRATED GOODS AND SERVICES TAX ACT, 2017 explains inter-state supply. The relevant sub-section is this:
(5) Supply of goods or services or both,––
(a) when the supplier is located in India and the place of supply is outside India;
shall be treated to be a supply of goods or services or both in the course of inter-State trade
or commerce.

This is to be read with Section 24 (i) of The Central Goods and Services Tax Act, 2017 which states:

24. Notwithstanding anything contained in sub-section (1) of section 22, the following
categories of persons shall be required to be registered under this Act,––
(i) persons making any inter-State taxable supply;

[For the reader’s benefit I am quoting sub-section (1) of Section 22 here:

22. (1) Every supplier shall be liable to be registered under this Act in the State or
Union territory, other than special category States, from where he makes a taxable supply of
goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh
Provided that where such person makes taxable supplies of goods or services or both
from any of the special category States, he shall be liable to be registered if his aggregate
turnover in a financial year exceeds ten lakh rupees.]

For registration, you need to visit keeping handy your PAN Card and your mobile phone and scanned copies of the following:

  • Your photograph
  • Address proof of your place of business (Property Tax receipt, Electricity Bill, Lease Deed or Rental Agreement etc.)
  • Cancelled cheque OR Bank Account statement showing your name, address and a few transactions

After filling up the form, you will submit it using an OTP sent to your mobile phone and on successful submission of your application, you will be allotted a temporary ARN sent to your registered email address. The process isn’t very complex, and it took this correspondent 30 minutes to complete the procedures needed for the submission of the GSTIN application.

An officer checks your application and approves it within a few days. If he has queries, you may be asked to produce more documents/details. You should receive your GSTIN by email within seven days. The email contains your GSTIN and a temporary password and you are asked to login and create your own user name and password.

When you have your GSTIN, you are required to file GST returns every month. Even if you have not conducted any business or done any work, you need to file NIL returns. For example, for the month of August, you have to file the following returns:

  • GSTR 1 – 10th Sept (Details of all sales)
  • GSTR 2 – 15th Sept (Details of all business expenses)
  • GSTR 3 – 20th Sept (Monthly Return and payment of tax)

You need to have all your tax invoices in one place. The standard rate of GST is 18% for services provided online – like writing, designing, digital marketing, advertisements, translations etc. You have to include your GSTIN and that of your client in the invoice and collect GST from your Indian clients and deposit it to the government. If the client is in the same state, GST will be divided into two components

  • CGST (central GST)– 9%
  • SGST (state GST)– 9%

But if your client is based outside your state, you’ll have to charge IGST (integrated GST) at the rate of 18%.

If some or all of your clients are based outside the country, your income is considered export income and hence, zero-rated.  if your income comes from a company registered abroad, you don’t have to collect IGST. But you will have to file GST returns. Here you have two options:

  • Pay 18% IGST on your income and then claim refund on GST payments for export services
  • Furnish a Bond or Letter of Undertaking for export services.

Normally, for the self-employed Indian freelancers export income is received through Paypal or wire transfer. In both these cases you will have to obtain FIRC (Foreign Inward Remittance Certificate) to prove export of services. Supply of goods and services for exports have been categorised as ‘Zero Rated Supply’ implying that goods and services can be exported under a Bond or Letter of Undertaking without payment of integrated tax followed by claim of refund of unutilised input tax credit or on payment of integrated tax with provision for refund of the tax paid.

Many freelancers receive their payments from abroad by means of Paypal payments. If you receive such payments, you can keep track of each of your payments and obtain FIRCs from the bank that does the conversion of foreign currencies into Indian rupees. For Paypal, Citibank is the designated bank and you have to get the FIRCs either individually or in bulk from your nearest Citibank Branch by paying a fee. Paypal explains the process in detail here.

If you think that obtaining Bonds or Letters of Undertaking or FIRCs to prove your export of services is too complex or time-consuming, you may prefer to just pay the tax and either bear the loss or raise your rates to offset your loss.

One way of offsetting some of these losses is to claim Input Tax Credit. Any registered person can avail credit against the tax paid on the inward supply of goods or services or both which is used or intended to be used in the course or furtherance of her business.

In other words the CGST /SGST/ IGST that you pay at the time of purchase of goods or services that you require for running your business like stationery, telephone, computer and accessories, furniture, internet/broadband will be available for tax credit when you file your return. So buy consumables and other provisions from GST registered dealers and make it imperative so they issue Tax Invoices to you that include the GSTIN of both the supplier and purchaser. Keep these invoices in a safe place for you’ll need them while filing GSTR-2.

A caveat. This post has been written to help freelancers like this correspondent who find this a new and difficult terrain and is not meant to be a complete guide. Yet it seems to me that anyone can register for GST and file returns on her own without much of a problem since everything  is being done online. If you work alone and have only a few invoices a month to take care of, you needn’t spend money on buying a software to file GST returns. It is not that difficult if you are ready to spend a few hours every month.

If you have questions, you may use the Comments feature below and I’ll try to answer or direct the readers to sites and places where they may find answers to their queries. If you find any errors in this post, please bring them to my notice.

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