Freelancers & Service Tax Applicability

Updated on: Jan 13th, 2022


5 min read

Freelancers who earn a freelancing income or professional income, which could be income from google adsense, or from projects over Upwork, or are providing any other form of professional work, are rendering ‘Services’, let us see whether they have to pay Service Tax.

What is Service Tax and who has to pay it?

When you earn an Income from a ‘Service’ – Service Tax is usually required to be paid by You – the provider of service and you have to recover this tax from the receiver of such services. Add it to the total value of your service and the client has to make the payment inclusive of this tax. Current service tax rate is 12.36%. Let’s say your total billing to your client is Rs 75,000. Service tax on it shall be Rs 9270. You invoice your client Rs 84270 and Rs 9270 will be service tax collected from the client and which has to be deposited to the government.

Service Tax Applicability

  • When revenue is Rs 10lakhs or less – If the total Revenue you earn from freelancing work is Rs 10lakhs or less, Service Tax rules do not apply. You will be exempt from collecting and paying service tax on your services. Here Revenue means your total receipts from your clients. Note that Revenue has a different meaning from Income, Income would be your revenue net of expenses.
  • Service Tax Registration – When you cross Rs 9lakhs in revenue it is mandatory to apply for service tax registration. You may also apply for registration before reaching Rs 9lakhs in revenue if you expect your revenue to cross that mark and want to prepare yourself, saves you the last minute rush! Need to get service tax registration done, reach out to us and we can assist you with it.
  • Export of Services – Service Tax is not applicable on services which are exported. Whether a particular service falls under the definition of ‘export of services’ will depend upon what is considered as the place of provision of services – simply, are these services considered as provided outside India or are these services considered as provided in India. There are tax rules that define when services are considered as provided in India or outside India. When this is an export of services and certain conditions are met – service tax may not be applicable. Unsure whether your service considered as an export – reach out to us and we shall help you!

Service Tax Payment & Return

Service tax payments can be done online. Doing these payments online is mandatory if your payments exceed Rs 1lakh in a year. Service tax has to be deposited with the government either quarterly or monthly based on whether you are an individual/company/partnership. Interest may also become payable for any delays in depositing service tax with the government.

Service Tax Returns have to be filed twice a year in Form ST-3 or ST-3A as applicable. Once you obtain a Service Tax Registration number, return filing is compulsory for you.

Do reach out to us if you have any questions related to service tax applicability to your income or need to get yourself registered, we will be happy to assist you!

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Quick Summary

Freelancers earning through services must pay service tax, recover it from clients. 12.36% is the current rate. Service tax not applicable if revenue is under Rs 10 lakhs. Registration mandatory if revenue exceeds Rs 9 lakhs. Not applicable for services exported out of India. Payments online for sums over Rs 1 lakh annually. Returns filed twice a year.

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