Goods and services tax (GST) has touched every sector of India’s economy. If you’re a freelancer, you may or may not have to pay GST depending on several factors. Even if you’re exempt from GST at this point, it’s helpful to know the ins and outs of how the tax works for when your business grows.
Definition of a Freelancer
You’re a freelancer if you’re not employed by anyone but you get paid by clients to do various short-term and long-term jobs on a contract basis. As a freelancer, you provide a service. Because of this, the government of India has determined that there are circumstances in which you are required to pay GST.
Freelancers are liable for IGST, CGST, or CGST, depending on where their clients are located. It’s important to remember that being a long-term freelancer doesn’t make you an employee or exempt from GST. Even if you work exclusively with clients outside of India, you still may be responsible to pay GST.
Who’s Required to Register for GST
Freelancers selling services with a turnover above Rs. 20 lakhs yearly must register for GST. Those with a turnover of less than Rs. 20 lakhs and who provide services only within their state are exempt from GST. The law is a bit different for freelancers in the northeastern states of Uttarakhand, Jammu and Kashmir, and Himachal Pradesh. There, you need a turnover of less than Rs. 10 lakhs yearly and must provide services only within your state to qualify for a GST exemption.
Regardless of your turnover, if you provide freelance services across state boundaries, the government requires you to register for GST. For example, if you’re a field researcher based in Maharastra and you provide services to a client in Tamil Nadu, you have to register for GST, even if you’re just starting out and your yearly turnover is fairly low.
There’s also no GST exemption for freelancers who run their businesses entirely online. So for example, if you’re a freelance social media strategist, writer, software programmer, or blogger, you’re required to register for GST.
Special Case for Bloggers
Independent bloggers usually consider themselves freelancers. If you fall into this category, it’s vital to remember that the service you provide is advertising — you sell space on your blog to companies. In some cases, you might sell space to advertisers in your state or across state boundaries, in which case the same GST rules for services apply. If you provide advertising space to companies that use Google Adsense, some of the companies might not be in India, and if they are, you may not know anything about them, so you can’t send them a GST invoice. As of May 2018, the law isn’t clear on what to do when this is the case, so stay tuned.
Tax Rates for Freelancers
The GST you’re liable for as a freelancer is based on the type of services you offer. As of 2018, GST tax rates are 0%, 5%, 12%, 18% and 28%. If there’s no specified GST rate for your service, you’re liable for 18% GST. Online bookkeeping software such as QuickBooks makes it easy to look up service accounting codes (SAC) and their accompanying GST rates with just a few clicks. GST rates for services are also posted on the Ministry of Finance Department of Revenue website.
You might be wondering if it might be easier just to register for the composition scheme and file taxes quarterly. Unfortunately, with the exception of the restaurant industry, freelance service providers across the board don’t qualify to use the composition scheme for taxation.
How Invoicing Works
When you bill your clients for your service, you send them a GST invoice. It’s very important to prepare your invoices correctly so that you pay the correct amount of GST for every job, avoid fines for errors, and claim any input tax credit
Using online accounting software is the best way to get your GST invoices right every time. In general, each GST invoice you create requires the following information:
- Your name, business address, and GST number
- An invoice number and date
- Your client’s name, address, and GSTN (if any)
- The applicable SAC
- The value of the service and its accompanying tax rate
- Your signature
In some cases, it’s your client who’s liable to pay GST on your service. This situation is called a reverse charge. The Ministry of Finance provides a list of services that require reverse charges. For example, if you’re a freelance photographer or artist and you create original works for a publisher, your invoice should have a reverse charge line item specifically for your publisher-client.
Input Tax Credit
The good news is that under GST, you can claim input tax credit on certain goods and services you use for your business. For example, if you buy a laptop and tablet and pay for internet service, you can claim the GST paid on these as a credit. The credit generated from your claim goes toward your GST liability, lowering it.
There’s a lot to learn when it comes to GST. The good news is that, when it comes to learning this new way of paying taxes, all business people in India are in the same boat. Once you learn the ropes, complying with GST will be as easy as opening your online accounting software and making a few clicks.