Are you a freelancer? And are you confused about whether you should register for GST? Don’t worry. We are here to help. This post aims to clarify several doubts, such as who should register for GST, the advantages of GST registration, and the payment terms and conditions (T&C) relevant to freelancers.
Who needs to register for GST?
GST registration may sound like a lot of work. But did you know it is not mandatory for all? Here are the situations that require GST registration:
- Your turnover exceeds Rs. 20 lakh in a financial year. For individuals living in Northeast India, the limit is Rs.10 lakhs.
- You receive payment for services under OIDAR (Online Information and Database Access and Retrieval). OIDAR includes activities, such as internet advertising, cloud-based services, and intangible items, such as e-books, entertainment (music, movies, online gaming), software, and any other electronic data, such as video lessons.
Why is GST needed for freelancers? What are its advantages?
Because the Goods and Services Tax (GST) is an indirect tax on the supply of goods and services in India, Indian freelancers must also pay GST when their turnover exceeds Rs. 20 lakhs in a financial year.
As freelancers, you do not receive any specific advantages of registering for GST. The benefits of GST registration are the same for everyone. Under this new GST regime, you have the option to file tax returns online. All you have to do now is go to the GST Portal, create an account, log in, and begin filing your GST returns. The customer or client is responsible for the additional cost.
The main advantage is that if you register, you will be able to claim GST credit, which may be used to balance future GST liabilities, as well as seek a GST refund (subject to certain conditions). For example, if your firm runs ads on Google to attract new clients or customers, you have to pay 18% of the total amount as GST.
What are the disadvantages of filing a GST return?
The only disadvantage of registering for GST is that the GST registration process, keeping records of finances, invoicing, and submitting returns are slightly time-consuming activities.
Documents needed for GST registration
Here are the documents you will require to register for GST:
- Your photo
- A copy of your PAN and Aadhaar card
- Identification and residence evidence
- A recent bank account statement or a cancelled check
- Your digital signature
- Electricity or telephone bill
- Office lease agreement
- No objection certificate
What happens after GST registration?
After you have submitted all the documents required and completed all the required formalities, you need to ensure that you follow the process to be on the right side of the law.
When raising an invoice, you need to add the GST amount to the overall billed amount. Thus, if your billed amount is Rs. 25,000 for one client, after adding GST at the rate of 18%, the total amount that your client needs to pay will be Rs. 29,500.
After collecting GST, you need to deposit the GST amount to the government when you file your GST returns.
Payments T&C for freelancers
Different payment terms and conditions (T&C) apply to freelancers who have registered for GST.
- Depending on the type of service you provide, GST rates on your services can be 0%, 5%, 12%, 18%, or 28%. If there isn’t a specific percentage, you need to charge your clients GST at the rate of 18%.
- After getting your GST identification number, you have to file GST regularly, i.e., monthly and yearly. This is irrespective of your current annual turnover.
- You need to make all payments online. Every year, there will be 37 returns to file: three monthly filings and one annual form.
- If you do not deposit the GST proceeds on time, you might have to pay a fine.
- To ensure that GST is deposited on time, you can issue the invoice on the 1st of the following month. This will give you enough time to pay your monthly GST bill.
- After paying all the applicable taxes, you need to submit a monthly summary return under GSTR 3B.
GST filing may be a little intimidating for many freelancers. Hiring a Chartered Accountant (CA) who has experience working with freelancers and solopreneurs will help you ensure everything is in line with the latest applicable laws.
Do freelancers need to register for GST if they raise invoices?
- If you are a freelancer, your clients will expect you to raise invoices. When you submit an invoice, your client may deduct 10% TDS from every invoice.
- If your income exceeds Rs. 20 lakh or Rs. 10 lakhs (for NE residents), it is not compulsory to register for GST even if you raise invoices.
- However, if you are registered under GST, your invoice should be according to the GST laws.
- You need to include your name, address, your GSTIN, your client’s GSTIN, Service Accounting Codes (SAC), date, amount, and signature on the invoice.
- The required GST is added to the cost of your services, and your clients need to pay it. You’ll then have to pay the government the same amount. It is a win-win situation for everyone because your clients may claim it as a tax credit when they deposit their taxes.
If your client does not want to pay the GST amount, there is a high probability that they don’t pay taxes or don’t want to pay you. In such cases, you may choose to stay away from these clients.
To sum it up
We have seen that GST registration for freelancers is a must in some instances. You cannot hide your income from the government. They will find it from the TDS deducted by your clients or from your bank payments. As all your accounts are linked with PAN and Aadhaar, the best option would be to go for GST registration. You can hire a CA to manage all your GST-related tasks.