Given the flexibility in nature, freelancing is the buzz word these days. The tag-line ‘become your own boss’ is trending and freelancing tops the list of emerging entrepreneurs. There are several opportunities for freelancers opened up and it is growing, especially with boom in e-commerce industry.
Any responsible citizen deliberates their responsibility as a taxpayer first. Naturally, what is the impact of GST on freelancers is a very common question.
To answer some important FAQs on taxation on freelancers, following sections are discussed in this article:
Applicability of GST on freelancers
Combination of freelancing service and sale of goods
Penalty for not registering and complying to GST rules
Applicability of GST on freelancers earning from outside the country
Income tax (TDS and ITR)
From the angle of taxation, there are two major aspects a freelancer deals with:
i Service imparted (GST) and
ii Income generated (IT)
Applicable GST for Freelancers
Service tax @ 18% is applicable on any service given through the freelancing route. This has subject to crossing the turnover over the threshold limit of 20L. The table below shows the limits:
Aggregate Turnover Meaning: It is the aggregate value of all the following taxable supplies under the same Permanent Account Number (PAN)
– exempt supplies,
– exports of goods or services
– inter-state supplies to be considered on an PAN India basis
The calculation for aggregate turnover excludes the value of inward supplies payable by a person on reverse charge basis.
Special Category States under GST
-Arunachal Pradesh
-Assam
-Jammu & Kashmir
-Manipur
-Meghalaya
-Mizoram
-Nagaland
-Sikkim
-Tripura
-Himachal Pradesh
-Uttarakhand
Please consider the fact while assessing if a person is required to take GST registration using the table above:- Collection of GST and payment of the same in all interstate supply of goods or service is mandatory.
As per the exemption specifically provided to Service providers only through notification No. 10/2017, A service provider is required register under GST and file return only if their aggregate turnover exceeds Rs 20 lakhs. Even if, they provide services on Inter-state basis, they are not required to do GST registration unless the aggregate turnover cross Rs 20 lakhs.
Penalty for not registering and not complying to GST rules
a. In case a person or an entity fails to register and pay GST who is required to be registered under GST law and need to submit return regularly can be penalized for Rs.10,000 or 100% of tax payable (whichever is higher).
b. Non-issuance of invoice / bill also attracts penalty of Rs.10,000 or 100% of tax payable (whichever is higher).
c. Issuance of incorrect invoice can attract penalty of Rs.25,000
Applicability of GST on freelancers earning from outside the country
Freelancers exporting their services earns their income from outside the country. As given in the Section 24 of the Central GST Act, any individual earning from outside the country or the state, is liable to get registered with GST. Hence, the threshold limit does not apply in such cases.
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Freelancers exporting their services earns their income from outside the country. As given in the Section 24 of the Central GST Act, any individual earning from outside the country or the state, is liable to get registered with GST. Hence, the threshold limit does not apply in such cases.
Income Tax
TDS for Freelancer
Freelancers are professional service providers. Service by a freelancer is subject to 10% tax deducted from source. Freelancers are eligible for claiming TDS refund similar to other individuals
ITR for freelancers
Freelancers are required submit IT Return in the ITR-4 and section 194J under the Income Tax Act. The act has mandate of the TDS deduction from the payment made for a professional service.
Advance Tax
If the yearly to be paid income tax amount exceeds Rs.10,000.00, then a freelancer has to pay income tax every quarter in form of Advance Tax.
Usually the advance tax are to be paid on or before 15th of September, 15th December and 15th March with 30%, 60% and 100% of total tax payable respectively.
Disclaimer : Periodically, the rules and acts go through changes and amendments. Please check http://www.gstcouncil.gov.in/ and https://www.gst.gov.in/ before acting on any advice given above. E.g. as per the table below. Several amendments for notification No. 10/2017 has been sought and some /all of amendments may also be in place already
Disclaimer : Periodically, the rules and acts go through changes and amendments. Please check http://www.gstcouncil.gov.in/ and https://www.gst.gov.in/ before acting on any advice given above. E.g. as per the table in the right side. Several amendments for notification No. 10/2017 has been sought and some /all of amendments may also be in place already
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