The Goods and Services Tax [GST] has been implemented from 1st July 2017 across India and has drawn a lot of applause as well as criticism. One bright spot in the entire new tax regime is that a business need not pay multiple taxes and can move good and products across the country without any hindrance. Let us see how the freelance industry is affected by GST especially since it deals more with service exports, the compliance requirement and its overall effect across the niche.
a. A freelancer or a vendor exporting goods and services outside the country, it is mandatory to be registered under the GST regime.
b. The moment a freelancer or a vendor earns one rupee from across the border, he has to comply and register.
c. A freelancer or a vendor, as per the GST act, cannot claim the basic exemption of turnover up to 20 lakh rupees, unlike all other categories that do not attract taxation up to such limit.d. Such freelancers or vendors need to comply with the norms and file the three mandatory returns on a monthly basis.
What it means to a freelancer or a vendor:
a. Registration with GST is a tedious process that includes new costs of getting a Digital Signature. A freelancer, unless he has some working experience with book-keeping, has to avail the services of a third party to get the registration done.
b. An IGST amount of 18% of the turnover needs to be deposited which will be treated as an input tax. This mount can be claimed after the transaction is concluded. Some of the services may be exempt. For example, bloggers were outside the purview of service tax in the VAT regime. In the present GST regime, there is no mention of the same.
c. A freelancer or a vendor will need to employ an accountant to comply with all the paperwork and requisite payments which means the administrative costs will go up.
What freelancers have to say:
“This move by the Centre will increase overhead expenses as well as administrative work. We are freelancers with a team of two and it will be very difficult to comply with new norms with limited earnings,” said Gurpreet Singh (name changed), a freelancer based out of Gurgaon who exports software services to businesses based in Europe, USA, and the UK.
What vendors have to say:
The effect will be multi-pronged as per Anuj Aggarwal, managing director, Altruist Technologies (P) Ltd., he says “There are millions of freelancers in India who export software to different countries. This will incur an increase in overhead expenses as they have to hire accountant also and their working capital will be blocked as first they have to pay tax and later on it will be refunded. My suggestion is there should be some threshold limit for registration.”
What the accountants have to say:
As per M.S. Chambyal, CA and vice-chairman, ICAI, Chandigarh Branch, in the present GST regime and as per the act of Institute of Chartered Accountants of India (ICAI), as per the GST Act, every freelancer or vendor exporting services has to comply with the GST law and a tax called IGST will be levied at applicable percentage (mostly 18%). HE added, “There is no minimum exemption limit. Even the freelancers are covered and have to get themselves registered. Under the GST, exports have been categorized as zero-rated supply and under the new regime; taxes paid on input as well as output supplies are refundable”.
It is possible that exports by small and medium freelancers and vendors who export software services may dwindle at least in the short run. This may be caused due to compliance issues, the cost-effectiveness of the business itself or due to decreased interest in business due to profitability issues.
We can see a brighter light ahead because compliance is important for everyone and freelancers and vendors who are presently unknown will be recognized as exporters and that comes with its own benefits. To build a better nation, we need to pay our taxes, don’t we? So, look at it with that perspective.
The information provided in this article is indicative only and is based on various sources of information. Kindly speak to your CA, accountant or any other consultant you deem fit before taking a step towards GST compliance.