GST for Freelancers

Hi guys,

Ever since GST has come in, there have been many rumours floating around its impact on Freelancers. I personally have gone through many articles myself but I have found the information to be very confusing. Which is why; I thought it would be best to introduce an expert who can simplify it all for us. A big thank you to Umesh from Taxadda.com who put together this useful article for all my readers.

Who is Freelancer?

Freelancers are persons who offer services usually to business and multiple clients at the same time.

How it applies to Freelancer?

As said above freelancer offers their services to business communities and multiple clients it attracts service tax as services are supplied by Freelancer and services are received by business and clients. In GST era service provider is termed as a supplier of services and service receiver is called as the recipient of services.

Definition Service under GST

As per section 2(88) Service means anything other than goods. For the purpose of this section, service includes intangible property and actionable claim but does not include money.

Procedure of filing return

Under GST you will have to file totally 37 returns for a year. 3 returns per month and one Annual return at the end of the year.

How to collect GST on services and Date of filing return

The supplier of services has to collect the tax on services rendered by him from the recipient of services and the tax should be deposited by tenth of every subsequent month (i.e. the next month)

For eg. Tax deducted or collected in the month of June shall be deposited till 10th July.

There are four types of taxes under GST era they are as follow

1. IGST: IGST is applicable when it is interstate transaction i.e. when goods or services are supplied from one state to another state.
2. CGST and SGST: CGST and SGST is applicable when it is intrastate transaction i.e. when goods or services are supplied within the same state then CGST and SGST are need to collected by the supplier of services in equal proportion.

For eg. : If the tax rate is 18% then CGST be 9% and SGST be 9%.

3. UTGST: UTGST is applicable when the transaction is occurring between Union Territory or Provisions (eg. Lakshadweep, Andaman-Niko bar, Daman-Diu, etc.) but excludes Delhi and Pondicherry. For Delhi and Pondicherry IGST and CGST and SGST are applicable.

One must be careful while charging the GST and depositing the amount of tax collected with related government. This above bifurcation will help you.

Applicability for those who renders services to Foreigners/outside India

In existing service tax laws services exported outside India are not chargeable to service tax those are exempted from charge ability of service tax. Under GST the same provision is continued, no tax is levied for exported services.

Registration requirement

Under GST you will be required to register when your aggregate turnover exceeds Rs.20 lack in a financial year. But this provisions does not applicable to any form of online business. Under section 19 read with schedule-III of Model GST laws every form of online business irrespective of the amount of its revenues/aggregate turnover is required obtain mandatory registration under GST. Hence registration is mandatory for freelancers irrespective of their turnover.

How to register?

If you are having a registration under existing laws (service tax) then you will get provisional ID for GST registration after login to aces (aces.gov.in) website. After getting Provisional ID you need to visit the GSTN portal and then click on the New Registration and follow the process for registration of GST you also need to upload the required documents but remember the size of every document does not exceed 1 Mb and those documents should be in the required format. (eg. PDF, JPG, etc.)

What about earlier credit?

You can carry forward the earlier credit on inputs, input services and capital goods which is showing in your return (ST3). You can also carry forward the unavailable credit on capital goods. However if you has opted for consumption scheme in earlier law then you are not entitle to carry forward of credit. For the purpose of carry forward following conditions needs to be fulfilled

1. Declaration under FORM GST TRAN – 1 to be made within 90 days of the appointed day of the Act
2. Same credit is admissible under existing law
3. All returns of last 6 months have been furnished, immediately preceding the appointing day
4. Such services are not exempted under any notification as notified by government

How and what input Credit should be adjusted?

You can adjust the credit by following

Against IGST payable you can adjust the credit of in the following sequence

1. Input credit of IGST
2. Input credit of CGST
3. Input credit of SGST

Against CGST payable you can adjust the credit of in the following sequence

1. Input credit of CGST
2. Input credit of IGST

Against SGST payable you can adjust credit of in the following sequence

1. Input credit of SGST
2. Input credit of IGST

Remember this credit should be adjusted in the following sequence only, you cannot disturb the sequence.

For eg. The IGST payable is Rs.10000, and the IGST input credit is Rs. 5000, CGST input credit is 2000 and the SGST input credit is 5000. You can’t adjust the input credit of IGST and SGST (5000+5000) against the output tax payable of IGST by ignoring or keeping aside the input tax credit of CGST, you will have to adjust in the manner said above

Output IGST/ IGST payable                                                                              10,000

Less: Input tax credit of IGST                                                                           (5,000)

Balance                                                                                                                 5,000

Less : Input tax credit of CSGT                                                                         (2,000)

Balance                                                                                                                   3,000

Less: Input tax credit of SGST                                                                           (3,000)

The balance of Rs. 2000 remaining input tax credit of SGST will be carried forward to next month.

You can also available the credit of tax for office supplies earlier it was not possible unless you have VAT registration. Let us illustrate that,

Suppose if you buy a new laptop from any store it was billed you with VAT, such laptop is a capital asset for your business and credit for is allowed under VAT but you are not registered with State for VAT as you are not engaged in trading activity your services falls in pure services so earlier such VAT i.e. tax was a cost to you but now you can avail the credit as now under GST era.