Home / Money / Personal Finance /  Things freelancers must know about GST payment

If you are a salaried employee, you do not have to pay goods and services tax (GST). But if you are a freelancer—lawyer, architect, designer, developer, sales professional, etc.— you have to pay GST in certain cases.

“Under current GST laws, any person supplying taxable services must be registered in the state from where he/ she is providing such taxable services; if the person’s aggregate turnover in a financial year is more than 20 lakh ( 10 lakh in some states such as those in the North East), the same would be applicable for freelancers as well upon exceeding the specified threshold," said Krishan Arora, partner, Grant Thornton Bharat. “GST rate as applicable to any other service provider (which is typically 18%) would also be applicable to such freelancers based on the nature of services being provided."

How it affects your income: “If you are a registered freelancer, your GST liability to be deposited with the government is usually collected from the service recipients," said Arora. This may result in slight working capital/ cash flow issues owing to the time difference in payment to department vis-à-vis collection of payments from customers. However, there would be no other impact on the freelancer’s income unless customers do not agree to pay GST as contractually agreed.

Further, freelancers may be eligible to claim input tax credit, subject to conditions. Hence, typically GST is not a cost to them, if applicable.

However, if you are an unregistered freelancer, even if you won’t be liable to pay GST for turnover under 20 lakh, any GST paid on procurements to vendors would be a cost as it is not eligible for input tax credit.

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Claiming input tax credit: “Credit of input taxes charged on any supply of goods and/or services which are used or intended to be used in the course or furtherance of his business can be availed for setting off with the output tax liability," said Aditya Singhania, partner, Singhania’s GST Consultancy & Co. and founder, e-GST India app. However, there are few specific goods or services where input tax credit is not allowed.

To avail input tax credit (ITC), freelancers need to possess invoice, must have received the goods and/or services and should ensure that the tax charged by the supplier has actually been paid to the government and file his/her own return. Since a lot of tax evasion takes place by availing ITC on the basis of fake invoices, a restriction has been placed vide Section 16(2)(aa), though not yet effective. This section empowers existing rule 36(4), which primarily allows ITC only if the details of the said invoices issued by the suppliers is appearing in the Form GSTR 2A of the recipient. “Therefore, it is of paramount importance that the freelancers should maintain caution while procuring goods and/or services from taxpayers which are tax compliant in nature," he added.

Providing services through online marketplaces: GST is generally applicable even in a situation where services are provided via online marketplaces such as Upwork and Freelancer. But Arora points out that an analysis may be required to examine if an online marketplace would qualify as an ‘e-commerce operator’ under GST law. In such a case, the online marketplaces will have to undertake additional GST compliances. They would be required to collect TCS at 1% from persons, including freelancers, who are supplying their goods and services through their electronic platform. Credit for such TCS would be available to such persons subject to conditions.

Voluntary GST registration: If a freelancer obtains voluntary GST registration, he/ she would have to abide by the provisions of GST law and would be required to undertake all related compliances and pay applicable GST.

“While obtaining voluntary registration may increase the overall compliance burden, it is a preferred option while dealing with B2B customers as they usually deal with registered persons. Also, obtaining GST registration would help reduce input GST costs on procurements, which would then be available as credit to such freelancers," said Arora.

Filing returns: It is important for freelancers to file returns properly (see table). On failure to file return on time, interest at 18% is levied along with late fee. “Alternatively, instead of filing the monthly return, freelancers do have the option to file return on a quarterly basis even while making payments on monthly basis (QRMP Scheme). However, it is available only if the aggregate turnover is up to 5 crore in the preceding financial year," Singhania said.

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