GST on Freelancers – Applicability & Rates

Freelancing in India has become a significant career option for many, giving people the freedom to work independently. Whether you’re a designer, content creator, consultant, or IT professional, freelancing allows you to be your own boss. But with that freedom comes responsibility—especially understanding taxes like the Goods and Services Tax (GST). Many freelancers are unsure about whether they need to register for GST, what rates apply, and how to handle clients from different countries.

What is GST, and Why Does It Matter for Freelancers?

GST, or Goods and Services Tax, is a tax on the supply of goods and services in India. Since freelancers provide services, they fall under this category and need to comply with GST regulations. In essence, freelancers are service providers, and the tax rules for service providers apply to them too.

When Do Freelancers Need to Register for GST?

Freelancers must register for GST when:

• Your annual income exceeds ₹20 lakhs: If your total earnings in a year go over ₹20 lakhs (₹10 lakhs in North-Eastern states), registering for GST becomes mandatory.
• You provide services to clients abroad: Even if you work with international clients, you must register for GST. However, these transactions are considered “zero-rated,” meaning no GST is charged on export services, but registration and regular filings are required.

When is a Freelancer Liable to be Registered?

As a freelancer, you need to register for GST in these cases:

1. If Your Annual Earnings Are More than ₹20 Lakhs

• If your freelance work brings in more than ₹20 lakhs in a year, you are required to register for GST. In some North-Eastern states, this limit is lower, set at ₹10 lakhs. Once you exceed this limit, registration becomes necessary.

2. If You Provide Services to Clients in Other States

• When you provide services to clients in different states within India, GST registration is compulsory, regardless of your total income. This is called “inter-state service,” and you need a GST registration even if your earnings are below ₹20 lakhs.

3. If You Serve International Clients

• Even if your clients are located outside India, you still need to register for GST. These transactions are considered “exports” and are treated as zero-rated, meaning no GST is charged. However, you still need to file GST returns.

4. If You Offer Online Services (eBooks, Cloud Services, Games, etc.)

• If you provide services like online book sales, cloud services, online gaming, or software to clients in India, you must register for GST, even if you are based outside the country. These services fall under special GST rules.

5. If You Voluntarily Register

• You can also voluntarily register for GST even if your income is less than ₹20 lakhs. This may be useful if you want to claim input tax credits on business expenses. However, once registered, you must comply with GST rules, including charging GST and filing returns.

What are OIDAR Services Under GST?

OIDAR stands for Online Information and Database Access or Retrieval services. These are services provided over the internet that don’t require much human interaction. They are usually automated and can be accessed by customers online.

Here are some examples of OIDAR services under the GST law:

1. Cloud services – Services like Google Drive or Dropbox, where you can store and access your files online.
2. Online ads – Digital advertising, such as the ads you see on platforms like Google or Facebook.
3. Online gaming – Games that you play over the internet, including multiplayer or downloadable games.
4. Digital products – Selling digital items like e-books, movies, music, or software over the internet.
5. Online data services – Providing downloadable information or databases, such as research reports or articles.

If you provide or use these services in India, GST will apply. Even if the service is from a foreign company but used by Indian customers, GST is still required.

Can a Freelancer Register as a Composite Dealer?

Freelancers are not allowed to register as composite dealers under GST. The Composition Scheme is designed for small businesses that sell goods, not services. It offers a lower tax rate and simpler paperwork, but this scheme is not available to freelancers who provide services like writing, designing, consulting, or IT work.

The only exception is for restaurants, which can use the Composition Scheme. For all other freelancers, the regular GST rules apply. This means you need to register for GST and charge the standard rate, usually 18%, on the services you offer.

GST Rates for Freelancers

Freelancers can be charged GST at 0%, 5%, 12%, 18%, or 28%, depending on the type of service they offer.

In most cases, if there isn’t a specific rate for your service, you’ll need to charge 18% GST. This is the common rate for services like writing, design, consulting, and IT work.

Simply put, if you’re unsure which rate applies to your service, 18% is the standard rate you’ll likely need to charge.

Documents Needed for GST Registration

Here’s what you’ll need to register for GST:

1. Passport-size photo
2. Proof of identity and address (like your Aadhaar or PAN card)
3. Recent bank statement or a canceled cheque
4. Digital signature
5. Utility bill (like your phone or electricity bill) as proof of address
6. Lease agreement (if you’re renting office space)
7. No Objection Certificate (NOC) from the landlord, if the office space is rented

What to Do After GST Registration

Once you have your GSTIN (Goods and Services Tax Identification Number), here are the steps you should follow:

1. Add GST to your invoices: Whenever you send an invoice, make sure it shows the service or product price, along with the GST amount (typically 18% for most services).
2. Use unique invoice numbers: Each invoice should have a different number to keep things organized and easy to track.
3. Include your GSTIN: Always add your GSTIN on every invoice you issue.
4. Pay the GST you collect: After receiving payments, calculate the GST you’ve collected and pay it through the GST portal.
5. TDS deductions won’t affect GST: If your client deducts TDS (Tax Deducted at Source), you still need to charge and pay the GST as usual.

If you’re based in states like Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, Sikkim, Uttarakhand, Himachal Pradesh, or Jammu & Kashmir, there may be additional rules you’ll need to follow.

Invoicing Rules for Freelancers

As a freelancer, your invoices need to follow GST regulations. This means each invoice should have key details like:

• Your name and your client’s name
• Addresses for both parties
• Your GSTIN (Goods and Services Tax Identification Number)
• The SAC (Service Accounting Code) for your service
• The invoice date
• The total cost of the service

You can use invoicing tools like Razorpay Invoices to easily create invoices that comply with GST rules.

How to Register for GST as a Freelancer

Registering for GST is easy and can be done online. Here’s a simple guide:

Part A:

1. Go to the GST portal and click on “New Registration.”
2. Enter your business name (the same as on your PAN card) and your email address.
3. Submit the form, and you’ll receive an OTP on your phone and email for verification.
4. Once verified, you will be given a Transaction Reference Number (TRN).

Part B:

1. Log in using the TRN you received.
2. Enter the OTP that you get on your email and phone.
3. Complete the rest of the form by filling in details and uploading documents like your photo, proof of address, and bank information.
4. Submit the form and verify it with your digital signature or e-sign.
5. You’ll get an Application Reference Number (ARN) to track your application.
6. Your GST registration certificate, including your GSTIN, should be ready within seven days.

What Happens If You Don’t Register for GST?

If your income exceeds ₹20 lakhs and you don’t register for GST, you can be penalized. The fine could be 10% of the tax owed or at least ₹10,000, whichever is higher. Non-compliance can also lead to legal issues.

How to Calculate GST as a Freelancer

Here’s a simple way to calculate GST:

1. Figure out the total cost: Add up all the charges for your service, like materials, labor, or other costs.
2. Apply the GST rate: The standard GST rate for freelancers is 18%. Multiply the total by 0.18 to get the GST amount.
3. Add GST to your invoice: For example, if your service costs ₹20,000, GST would be ₹3,600, so the total on the invoice would be ₹23,600.

Can Freelancers Claim Input Tax Credit?

Yes, freelancers can claim Input Tax Credit (ITC). This means you can get credit for the GST you paid on business expenses like buying a laptop, internet services, or software subscriptions. This helps reduce the total amount of GST you need to pay.

Penalties for Late Filing

If you don’t file your GST on time, you’ll be charged a late fee of ₹200 per day and 18% interest on any unpaid tax. If you don’t pay the tax, the penalty could be as high as 10% of the amount due, with a minimum fine of ₹10,000.

Do Freelancers Need to File GST Returns?

Yes, freelancers must file 25 GST returns in a year, including two each month and one annual return. If you don’t file, the government can still track your earnings through payments in your bank or TDS (Tax Deducted at Source) deductions. Non-compliance can result in fines or penalties.

TCS (Tax Collected at Source) for Freelancers

If you use platforms like Freelancer.in or Upwork, they are required to collect TCS (Tax Collected at Source) at a rate of 1% for freelancers registered under GST. This rule applies to all GST-registered freelancers using these platforms.

Protecting Your Intellectual Property (IP)

Your creative work as a freelancer—whether it’s writing, designs, or software—falls under intellectual property (IP). It’s important to understand your rights and take steps to protect your work through legal measures such as copyrights or trademarks.

Conclusion

Handling GST might seem complicated, but services like Whizseed can help guide you through GST registration, filing returns, and ensuring compliance. This lets you focus on your work while leaving the tax matters to the experts.

Frequently Asked Questions

Do freelancers need to pay GST?
Yes, if you earn more than ₹20 lakhs annually, you must register for GST and pay the tax.

What is the tax limit for freelancers?
Freelancers need to pay income tax if their earnings exceed ₹2.5 lakhs. This threshold is higher for senior citizens.

Do IT professionals need to pay GST?
Yes, IT professionals, like other freelancers, need to pay GST if their yearly income exceeds ₹20 lakhs.

Can freelancers avoid paying taxes?
No, freelancers are required to pay taxes. However, you can lower your tax liability by claiming deductions and exemptions.How do freelancers register for GST?
Freelancers can register through the GST portal by submitting their PAN, Aadhaar, business proof, and bank details. Once registered, they must regularly file returns and pay any applicable taxes.