Taxes are often regarded as an unwelcome but unavoidable part of the freelancer’s life. The Goods and Services Tax (GST) registration for freelancers in particular is considered optional, with many freelancers avoiding GST registration when they do not cross the aggregate turnover threshold of Rs. 20 lakhs in a financial year. However, GST registration is really simple, and the process has been made user-friendly to benefit small-scale entrepreneurs and businessmen. In the long run, it can actually benefit your business.
For one, it pushes the unorganised sector to become mainstream, giving them access to a larger number of clients. Several small-scale entrepreneurs aver to the fact that applying for GST actually pushed them to explore territories they may not otherwise have ventured into like e-commerce. Freelancers can benefit by landing projects from overseas clients and selling their goods via online channels.
Here’s a quick look at the various kinds of GST and when they would be applied:
CGST or Central Goods and Service Tax
CGST is imposed on intra-state supplies of both goods and services by the Central Government. The SGST is also levied on the same intra-state supply but is governed by the State Government. Both governments have an agreement on sharing the revenue between them.
SGST or State Goods Service Tax and UTGST or Union Territory Goods and Service Tax
Depending on whether you are registered from a state or a Union Territory, SGST or UGST would be levied along with CGST. Ensure that you are not levied both SGST and UTGST on an invoice.
How this would work:
Assume that Aarya is a website designer in Chennai selling his service to a company based in Chennai. The total value of his service amounts to Rs. 2,00,000. The GST rate of 18% would include CGST of 9% and SGST of 9%. So, Aarya would collect an additional Rs. 36,000 from the client. Of this, Rs. 18,000 would go to the Central Government and Rs. 18,000 would go to the Tamilnadu Government.
IGST or Integrated Goods and Service Tax
IGST would be levied on Import or Inter-State supply of goods or services or both. The IGST is equivalent to the sum total of CGST and SGST/UTGST. It is also applicable on cases of import into India and export from India.
In the example above, if Aarya from Chennai were to provide his services to a company based in Maharashtra, he would charge 18% IGST and the amount would go to the Central Government.
Filing for GST: things to remember
- Filing for GST is really simple and can be done online on GST.gov.in
- The extra amount is borne by the client and not by the service provider/freelancer.
- You need to file a total of 37 returns-- three monthly returns and one annual return.
- If you cross the threshold amount but do not register and collect GST, you can be tracked on the basis of your TDS.
- GST Payment has to be done before the 20th of the next month in the case of taxable supplies.
- Under GST, a registered dealer has to file GST returns that include: Purchases, Sales, Output GST (On sales), Input tax credit (GST paid on purchases).
- To file GST returns, GST compliant sales and purchase invoices are required.