Are You A Freelancer? Here Are Three Things You Should Know About GST

Are You A Freelancer? Here Are Three Things You Should Know About GST

Freelancers are required to pay GST for their services, under certain criteria laid down under the tax laws. Read here to find out the details

The pandemic has changed the world in a lot of ways. Just as work from home has become the norm for most corporations, there has been a rise in the demand for freelancers, too. These freelancers are not tied to one company; rather, they offer their services to several companies.
While freelancing comes with a lot of flexibility, freelancers often find themselves so tied up with projects that they often fail to pay proper attention to their finances. One important aspect of freelancing work is the goods and services tax (GST) that freelancers need to pay.

The goods and services tax (GST) that freelancers must pay is a significant component of their employment.

Here, we will look at three things freelancers should know about GST. 

GST registration threshold:  Salaried employers are not required to pay any GST. However, freelancers with an annual turnover of more than Rs 20 lakh fall under the ambit of GST, and have to pay an 18 per cent GST for income earned from freelancing services. Freelancers need to pay GST when the annual turnover is more than Rs 10 lakh (for specific cases of north eastern states). Eligible freelancers need to register for GST. 

You may also register voluntarily for GST: If your income from freelance is less than the threshold limit, you do not need to pay any GST. However, a freelancer can choose to register under GST, even if the annual income is less than the threshold limit.
“If a freelancer voluntary obtains for GST registration, he/she will have to abide by the provisions of the GST law. Also, he/she would be required to undertake all the related compliances and pay the applicable GST. However, obtaining voluntary registration could increase the overall compliance burden,” says Krishan Arora, partner at Grant Thornton Bharat.  

Getting a GST registration is helpful when working with b2b clients as they normally do not work with unregistered clients. 
“Obtaining GST registration would also help to reduce the input GST costs which a person might incur on procurements, which would then be available as credit to such freelancers,” adds Arora. 

Services provided on online marketplaces: GST rules apply if the freelancer is working for a client directly or through a freelancing platform, such as Freelancer or Upwork. “The liability to collect/ deposit the same with the IT department would remain with the ultimate service provider in both scenarios,” says Arora. 

Also, when it comes to online market places, it is important to analyse whether such a marketplace would qualify as an ‘e-commerce operator’ under the GST law. In such a case, there are additional compliances which need to be undertaken by such marketplaces. Online marketplaces which qualify as e-commerce operators would also need to collect a tax collected at source (TCS) of one per cent from freelancers who are supplying goods and services through their platform. Credit for such TCS may also be available subject to certain conditions. 

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