The introduction of the Goods and Service Tax in 2017 streamlined the prevailing tax structure and provided for an efficient and technology-driven tax regime. GST consolidated the major existing indirect taxes, such as Value Added Tax (VAT), sales tax, additional customs duty, and more. It provided four different tax slabs for both goods and services. At present, there are three types of GST: Central GST, State GST and Integrated GST. With the implementation of GST, a wide variety of service providers, including freelancers, came within the purview of taxation.
Before we discuss the various aspects of freelancers under GST, you must know what a freelancer is. A freelancer is not under the employment of a single organisation. They can simultaneously work under contracts for different organisations and charge a fee for their services.
All freelancers need not be compulsorily registered. Registration under the GST is only required in the following cases:
If the annual turnover of a freelancer is above Rs. 20 Lakhs.
If the annual turnover of a freelancer residing in the North-eastern states is more than Rs. 10 lakhs.
If a freelancer provides OIDAR services. OIDAR stands for Online Information and Database Access and Retrieval Services.
If a freelancer is engaged in the export of services across states, compulsory registration is required for proving inter-state services under the Integrated Goods and Service Tax Act.
Those services, which are provided via the internet and are also received by the beneficiary online, sans any physical contact, come within the ambit of Online Information and Database Access and Retrieval (OIDAR) services. Here’s a look at the examples of OIDAR services:
Online advertising for a beneficiary
Providing cloud-based services.
Providing non-physical products such as movies, music, software, electronic books etc. online.
Providing facts, figures and other information or undertaking data research for a beneficiary online
Video games, which are played over the internet and involve interaction with other online players.
The union government announced the composition scheme in 2019. Under the scheme, freelancers with an annual income of less than Rs. 50 Lakhs can opt to pay GST at a nominal rate. According to the provisions, those opting for the scheme have to pay a GST rate of 6%, comprising 3% as Central Goods and Service Tax and 3% as State Goods and Service Tax, on a quarterly basis.
To get a complete picture of freelancers under GST, you must know the applicable tax rates for providing freelancing services. Depending upon the category of services, freelancers are subject to four different tax slabs:
Remember, if the category of service cannot be specified, a GST rate of 18% is applicable.
Freelancers have to follow the invoicing rules according to the GST Act, 2017. Similar to other service providers, a freelancer is required to provide the following details in the invoice:
Name, address and Goods and Service Tax Identification Number (GSTIN) of the service provider
Name, address and Goods and Service Tax Identification Number (GSTIN) of the beneficiary
Service Accounting Code (SAC)
The date on which the service was provided
Cost of services
Signature of the service provider
Freelancers under GST are eligible to claim the Input Tax Credit (ITC)–a mechanism under the GST Act to prevent cascading of taxes. The input tax credit can be claimed by a freelancer for the costs incurred in providing a particular service.
For instance, if a freelancer incurs the cost of electricity and telephone for providing an online service to a client or beneficiary, the individual can deduct the taxes paid on using these services from the total GST amount. Input Tax Credit can help freelancers reduce their total tax burden. However, freelancers availing the composition scheme cannot claim the input tax credit.
Along with filing the mandated monthly or quarterly GST returns, a freelancer has to file an annual return as well. It is compulsory for freelancers registered under the GST Act to file the correct returns within the stipulated date. Non-filing of returns can result in the imposition of stiff penalties. As the bank accounts of all service providers, including freelancers, are now linked with their PAN details and Aadhaar numbers, it is impossible to evade taxes.
All freelancers are not required to get registered under the GST Act.
Freelancers registered under the GST Act pay taxes according to the applicable tax slabs. Those not under the GST also pay income tax based on their annual turnover.
There is no mandatory requirement for a freelance service provider to get registered.