GST : The freelancer’s guide to reducing hassles

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TaxClue Team
TaxClue Team
Taxclue is an online news portal for reporting all news, articles, judgments, Circulars, orders, and notifications relating to various corporate and tax laws in India. We use the tagline ‘Simplifying Laws’. Our mission is to Simplify the Laws and make people aware of their rights and duties in relation to tax matters in order to equip them to participate in nation-building.
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Nowadays there is a growing number of people voluntarily registering under the goods and services tax (GST). Most of them are freelancers, i.e., they are self-employed and not committed to particular employment for the long term.

While the businesses these people run may be small, compliance requirements from the clients’ end compel them to register themselves under GST law, which also mandates them to undertake regular filing of returns and tax payments.

With the advent of GST and tax laws, we will take a look here at how these people can seek benefits.

While anecdotally formal employment numbers are falling, the freelancing industry has been on a steady rise. However, most of these enterprises are in the unorganised sector that lacks clear and specific rules and regulations.

Also read: CBIC issued new guidelines for GST refunds

Who is a freelancer?

This industry comprises professionals encompassing fields as diverse as blogging and consultancy. From a vast range of interests from travel and food to technology and fashion, and covering different professions, freelancing has been a way for people to display their talents and be their own boss.

With the introduction of GST, there has been confusion and the new rules and regulations of the tax concerning this market leave an unclear picture. Here, we try to address issues faced by freelancers with the object to simplify the complexity of GST.

Over time, the freelance industry has turned out to be one of the highest revenue-earning sectors. Therefore, it was bound to be taxed. Freelancers who earn Rs 20 lakh or more a year are required to be registered under GST and pay 18 per cent tax on any income earned from these services.

Such people need to get registered under GST even if they are providing the services outside India, but if your turnover is less than 20 lakh rupees in a year (10 lakh for special category States), the registration can be given the go-by.

You may be exempt, but take it

While many people will fall in the exempt category and not register, it is suggested that one does so. For one, there is no cost or fee payable to the government for obtaining GST registration. Moreover, opting for the basic proprietorship firm registration and opening a current account in the bank in the name of the firm makes it easy to raise invoices on clients and accept payments.

Also, if you register under GST, you get a host of benefits.

  1. Claim input tax credit (ITC) for the following services
    1. GST charged on service fee charged by payment gateways for payments received via such method-   Service fee for running ads on, say, Google or Facebook
    2. Services like Google Business Suite (Gmail) or other products
  2. Many large corporations will hire only GST-registered vendors as they need a GST tax invoice for the services procured. Obtaining GST registration can help a freelancer work with such entities.
  3. A freelancer could also opt for a composition scheme under GST. Under this, the freelancer can pay a fixed percentage on total turnover without claiming the credits and maintaining tedious records required under GST. The threshold for the composition scheme is Rs 50 lakh for service providers and Rs 1.5 crore for entities dealing in goods.

When can you raise an invoice?

In terms of day-to-day working, as per the GST provisions, for services, the invoice needs to be raised within 30 days from the completion of services. For goods, the invoice is to be raised once the goods are moved out of premises.

Freelancers can also opt to issue an invoice on the first of the following month, which gives 50 days to realise the invoice and make payment of GST.

It will not lead to any sort of blockage of their funds. However, if the invoice is realised after 50 days, GST will have to be paid from the registered person’s own funds.

Freelancers can consider allowing payment terms of 20-30 days so that the payment is received on time for each transaction.

If this strategy is followed, it can help streamline the process of payment and ensure that they are compliant with minimal impact on working capital.

How to avoid payment defaults and disappointments

While you cannot completely control the client firm or its officials in charge of making payments to you, there are some hacks we recommend:

    • Make sure clients are legit
    • Maintain tracking sheet for pending payments
    • Invoice in a fixed schedule as far as possible
    • Try to get payments through the digital mode
    • Wherever possible, insist on advance payment/deposit
    • In case any expense is required to pay, let the client pay directly

It is very important to be disciplined in following the above steps as in case the invoice has been raised for the services provided, the freelancer would be required to pay GST.

In case of deficiency in service, it should be properly documented by the client raising concerns on the quality of service and, accordingly, the freelancer can raise a credit note against the invoice raised to reduce the tax exposure on such invoices.

How frequently should you pay GST?

In terms of periodicity, freelancers can consider opting for the QRMP (quarterly return monthly payment) scheme instead of filing monthly.

Under the QRMP scheme, the registered person needs to pay GST on a monthly basis in Challan PMT 06 as per self-assessment or on a minimum of 35 per cent of the total tax liability to avoid the interest liability. Further, the periodicity to finalise tax liability and returns would be quarterly.

As per the provisions of GST, in case a registered person fails to file GST returns for three consecutive periods, the registration can be suspended. In such a situation, the freelancer cannot undertake any business activity until the suspension is revoked.

Also, as the returns would be delayed, interest at 18 per cent a year on the tax amount would also be payable for the period of delay along with late fees.

The authorities may even ask for payment of a penalty ranging between 15 per cent and 100 per cent of the tax amount in case the delay is prolonged.

To conclude, while undertaking compliances or maintaining records under GST might seem to be a hassle for a freelancer (who might not be from a finance/tax background), with some learning and the following discipline in raising and recovery of invoices, the task might not be that big as it seems to be.

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