Freelancers are self-employed individuals who provide their services to clients on a project basis. They work independently and are not employees of any businesses or organisations. Freelancers are required to pay taxes on their income, including Goods and Services Tax (GST). This blog will discuss GST on freelancers and GST tax rates.
What is GST and How Does it Apply to Freelancers?
GST is an indirect tax imposed on the majority of goods and services sold in India for domestic use. Every value addition is subject to the full, multi-stage, destination-based GST tax. A single domestic indirect tax code governs the entire company. The Parliament approved the Goods and Service Tax Act on March 29, 2017, and it took effect on July 1 of that same year.
GST Registration for Freelancers
If a freelancer's annual revenue surpasses Rs. 20 lakhs, they must apply for GST registration. All companies and people involved in the supply of goods or services should register for GST. The following is the process for GST registration for freelancers:
- Click the "Register Now" button on the GST portal's home page.
- Choose "New Registration" and fill out the form with your name, PAN, email, and mobile number.
- Enter the OTP(One time password) sent to your mobile number and email address to verify your information.
- Include all necessary information, including your company's name, address, and bank account information.
- Upload the necessary paperwork, including your bank statement, PAN card, and Aadhaar card.
- Submit the application, then wait for the issuance of the certificate of GST registration.
GST Tax Rates for Freelancers
The amount of GST for freelancers varies depending on the services they provide. Following are the GST tax rates for various services:
18% GST:
This category includes the majority of services, including software development, content writing, graphic design, and digital marketing.
12% GST:
This category includes services, including accounting, auditing, and legal consulting.
5% GST:
This category includes services, including contract labour for the textile industry, printing services, and tailoring services.
0% GST:
GST does not apply to healthcare, education, and transportation services.
The GST on freelancers' business expenses, such as rent, office supplies, and equipment, can be reclaimed as an input tax credit (ITC). ITC can be claimed if the freelancer is registered for GST.
What are the GST compliance requirements for freelancers?
The following are the GST compliance requirements for freelancers:
GST Registration:
If a freelancer's yearly revenue reaches Rs. 20 lakhs, they must register for GST. Even if a freelancer only provides services to clients outside of India (100 per cent export of services), GST registration is still required. If a freelancer enrols voluntarily, GST will also apply to him.
GST Tax Rates:
GST on Freelancers varies based on their services. 18% GST on freelancers includes categories such as software development, graphic design, content writing, and digital marketing. The 12% GST category includes accounting, auditing, and legal consulting services. The 5% GST category includes services like contract labour for the textile industry, printing services, and tailoring services. GST does not apply to healthcare, education, and transportation services.
Invoicing:
Freelancers must send GST invoices to clients for their services. The client's name and address, the description of the services, the amount billed, and the freelancer's GSTIN (Goods and Services Tax Identification Number) should all be included on the invoice. The GST rate and the amount of GST levied should both be stated on the invoice.
GST Return Filing:
Depending on their annual revenue, freelancers must file monthly or quarterly GST returns. They must submit GSTR-1 (for outgoing supplies), GSTR-2 (for incoming goods), and GSTR-3 (for monthly returns).
Input Tax Credit (ITC):
Freelancers can claim input tax credits (ITCs) on the GST they paid on company expenses such as rent, supplies for the office, and equipment. Freelancers can claim ITC only if they are registered for GST.
To avoid fines and legal repercussions, it is advisable that freelancers must adhere to the GST requirements. To understand the GST compliance standards and ensure they abide by the rules, freelancers might seek the assistance of professionals like Lawgical India to file GST returns easily.
Conclusion
If a freelancer's yearly turnover surpasses Rs. 20 lakhs, they must register for GST. Freelancers can use the procedures listed above to register for GST online. The amount of GST on freelancers varies depending on the services they provide. Freelancers can claim an input tax credit (ITC) on the GST paid on their business expenses. Freelancers must adhere to the GST requirements to avoid fines and legal repercussions.
