The introduction of the Goods and Services Tax (GST) in India brought significant changes to the way businesses and professionals handle their taxation. Freelancers and consultants, who often operate as independent service providers, have been directly affected by this shift. In this blog, we will explore how GST impacts freelancers and consultants, from registration to compliance, and the steps they need to take to ensure they are in line with the law.
1. Who is Considered a Freelancer or Consultant under GST?
Freelancers and consultants generally operate independently, offering their expertise and services to clients on a contract or project basis. Under the GST regime, freelancers and consultants are considered service providers, and the tax laws applicable to service providers will apply to them as well.
A freelancer typically refers to individuals offering services like writing, design, content creation, coding, and more. On the other hand, consultants usually provide professional services like business, legal, financial, marketing, or IT consultancy.
2. GST Registration for Freelancers and Consultants
Do Freelancers and Consultants Need to Register Under GST?
Under the GST Act, the requirement for GST registration depends on the aggregate turnover and the nature of services provided by freelancers and consultants.
- Mandatory Registration: Freelancers and consultants whose aggregate turnover exceeds ₹20 lakhs (₹10 lakhs for special category states) in a financial year must mandatorily register for GST.
- Voluntary Registration: Freelancers and consultants with a turnover below the threshold limit can voluntarily register for GST. Voluntary registration has certain advantages, such as claiming Input Tax Credit (ITC) on business-related purchases and enhancing credibility with clients.
Exemption for Small Freelancers/Consultants
If your turnover is less than the prescribed threshold limit, you may not need to register for GST. However, if you are working with large businesses or government agencies, they may ask for a GST registration to ensure that they can claim ITC on the services you provide.
3. GST on Freelance and Consultancy Services
Freelancers and consultants are primarily service providers, and GST applies to the services they provide. The applicable GST rates for services rendered by freelancers and consultants depend on the type of service offered.
GST Rates for Freelance Services:
Most services provided by freelancers are taxed at the 18% GST rate. However, the rate may vary based on the nature of the service. For instance:
- Professional services like legal, accounting, or financial consultancy are subject to 18% GST.
- IT and software-related services are also subject to 18% GST.
- Certain specialized services may have different tax rates (e.g., goods transport agency (GTA) or exports of services).
GST on Export of Services:
If freelancers or consultants are providing services to clients outside India, their services are considered exports under GST, and such exports are zero-rated. This means no GST is charged on these services, and they can claim a refund for any taxes paid on inputs or services used to provide the exported services.
GST on International Consulting:
Freelancers and consultants providing international services are treated as export of services, and thus, they are not required to charge GST. However, they can claim an ITC refund on any tax paid on business inputs used to offer these services.
4. How to Handle GST for Freelancers and Consultants
Invoicing and GST Compliance:
Once registered under GST, freelancers and consultants are required to issue GST-compliant invoices. These invoices must include details such as:
- GSTIN of the freelancer/consultant.
- GSTIN of the client (if applicable).
- Date of supply and invoice number.
- Description of services provided, along with HSN/SAC code.
- GST rate charged and the amount of GST.
- Total value of invoice including the GST amount.
Freelancers and consultants must maintain records of their invoices, receipts, and expenses for accurate GST filing.
5. GST Filing for Freelancers and Consultants
GST Returns:
Freelancers and consultants who are GST-registered must file the following returns:
- GSTR-1: To report outward supplies (sales). This needs to be filed on a monthly or quarterly basis, depending on turnover.
- GSTR-3B: To report the summary of tax payable and ITC. This also needs to be filed monthly/quarterly.
- GSTR-9: The annual return, which consolidates all the GST returns filed during the year. Freelancers and consultants must file this return once a year.
Timely Filing:
Timely filing of returns is essential to avoid penalties. Freelancers and consultants should ensure that their GST returns are filed on time to maintain compliance with the law. The due date for filing GSTR-3B is usually the 20th of the next month, and GSTR-1 is due by the 11th of the next month.
6. Input Tax Credit (ITC) for Freelancers and Consultants
Freelancers and consultants who are GST-registered can claim Input Tax Credit (ITC) on the GST paid for business-related purchases, including:
- Office supplies (e.g., stationery, furniture).
- Business-related software and tools.
- Travel and transportation expenses related to the business.
- Professional services like legal, accounting, or auditing services.
This means that if you are paying GST on purchases made for your freelance or consultancy work, you can offset it against the GST you collect from clients. The ability to claim ITC reduces the overall tax burden for freelancers and consultants.
7. Common Challenges for Freelancers and Consultants under GST
- Understanding GST Laws: GST compliance can be complex, especially for freelancers and consultants who may not have a formal accounting background. It’s essential to understand the specific GST laws that apply to their services.
- Managing Cash Flow: Freelancers may face cash flow challenges when paying GST on income before receiving payment from clients.
- Invoice Generation: Maintaining proper documentation and GST-compliant invoices can be cumbersome for small-scale freelancers.
8. Conclusion
The introduction of GST has brought both opportunities and challenges for freelancers and consultants in India. While GST registration is beneficial for claiming ITC and enhancing credibility, it requires careful adherence to compliance requirements, including accurate invoice generation, tax filing, and maintaining records.
Freelancers and consultants should stay informed about the GST provisions and ensure they comply with the applicable rules. Timely filing of returns and maintaining proper documentation can help avoid penalties and ensure smooth operations under the GST regime.
📞 Need Help with GST Filing or Compliance?
If you’re facing any difficulties related to GST registration, filing returns, or any other GST-related queries as a freelancer or consultant, feel free to reach out to Taxeasy Solution for expert assistance:
📍 Taxeasy Solution
Supaul Bazar, Biraul,
Darbhanga, Bihar – 847203
📞 Mob: 6289187606
📧 Email: jhajp96@gmail.com
