Freelancers are persons who work on multiple engagements and are not employed by anyone. They work under contract basis on specific assignments and receive a contract fee for the same. On reading the definition, it becomes clear that a freelancer is a service provider and rules relating to service provider shall also be applicable to him.
- Whether a ‘Freelancer’ is liable to be registered?
- What are OIDAR services?
- Whether composition scheme is applicable to a freelancer?
- What would be the rate of tax applicable?
- What are the rules regarding invoicing?
- Is the service provider eligible for input?
- Should returns be filed?
Whether a ‘Freelancer’ is liable to be registered?
We know that under the GST law, mandatory registration needs to be obtained in the following situations:
- When the turnover crosses the threshold limit of Rs. 20 lacs (general cases)
- When the turnover crosses the threshold limit of Rs. 10 lacs (specific cases of North-east states)
- For services covered under Online Information and Database Access and Retrieval services (‘OIDAR’)
- When the service provider provides interstate supply of service. For example, a freelance software developer in Bangalore provides service in Mumbai, then he will have to obtain mandatory registration.
- Cases when there is an export of service. For example, if a person writes an article for an organization in the UK and the amount is paid to the person in Pounds (receipt should be in foreign exchange), then it will be considered as an export of service.
What are OIDAR services?
Under the GST Act, OIDAR services include the following:
- Advertising on internet
- Providing cloud service
- Provision of e-books, music, movie, software and other intangibles via the internet
- Providing data or information, retrieval or otherwise to any person in electronic form through a computer network
- Online gaming
For more information on OIDAR click here
Whether composition scheme is applicable to a freelancer?
As per the GST Act, composition scheme is not applicable to a service provider except a service provider providing restaurant service. Based on the above, we can conclude that composition scheme is not applicable for a freelancer.
What would be the rate of tax applicable?
The rates of tax under GST are 0%, 5%, 12%, 18% and 28%. The services will be taxed as per the respective slab rates. If nothing is specified, 18% would be the applicable tax rate.
What are the rules regarding invoicing?
The invoice raised by the freelancer shall be according to the GST laws. The invoice should contain name, address, GSTIN of the supplier as well as the recipient, SAC of services, date, value, and signature. To know more about invoice, click here
Is the service provider eligible for input?
The freelancer, like any other taxpayer under the GST is allowed to take the input of the services used by him for the purpose of rendering service. For example, he may be using a laptop, electricity, telephone etc to provide taxable service.
Further, the tax being charged by the freelancer can also be taken as input by the recipient of service. Therefore, we can conclude that the burden of GST does not fall on the freelancer nor will his fee be reduced as he will be collecting the extra tax amount from the customers.
Should returns be filed?
A total of 37 Returns should be filed which includes 3 monthly returns and 1 annual return. To read more about filing returns, click here
If a freelancer does not opt to register and collect GST, it is not that the Government will not be able to track it. The department will still know about his turnover either if TDS is deducted in his case (by the person making payment to him) or through the payments in his bank accounts. Since all accounts are Aadhar and PAN linked, it is tough to escape from the eyes of Law.
We can now comprehend that a freelancer is bound by the laws of the Act and non-compliance may result in a penalty. To avoid the same, expert advice is recommended for registration, return filing and invoicing.