Do Freelancers Need GST in India?

Freelancers in India are looked upon as service providers who work on a contract or hourly basis for clients in India and across borders using online freelance marketplaces like Upwork or Freelancer. And most services carry an 18% GST rate, requiring registration under GST rules for compliance.

In this article, we'll look at GST for freelancers in India, from thresholds and invoicing to zero-rated exports for international clients and how to avoid penalties.

GST for freelancers is a uniform indirect tax that is applied on the services you supply to replace multiple state taxes that come under the CGST Act. You are looked upon as a service provider, and you have to collect GST from clients while claiming the input tax credit (ITC) on business expenses like software or marketing.

It splits into CGST + SGST for intra-state supplies or IGST for inter-state. You can use SAC codes for classifications, such as 9983, which can be used for IT consulting. With GST, you contribute to India's single tax regime and benefit from ITC across states. Your service exports are generally zero-rated, but you have full ITC eligibility via LUT. And if your turnover exceeds the threshold amount, GST is applicable.  

GST for freelancers becomes mandatory once you cross an annual aggregate turnover of  ₹20 lakhs in normal states or ₹10 lakhs in special category states like Northeast India. Also, you need to do GST registration for freelancers if you're making an inter-state taxable supply. If you fail to register on time, you might attract penalties up to ₹10,000 plus tax dues, so make sure you're monitoring your earnings quarterly for GST for freelancers in India compliance.   

Also, voluntary registration below the limit allows claiming input tax credit (ITC) and issuing GST invoices to clients. You must track all income from services, including platforms like Upwork or domestic contracts, to calculate turnover accurately.

The standard GST rate for freelancers in India is 18%. It includes common services like web development, content writing, graphic design, and business consultancy. You can make use of your SAC (Service Accounting Code), which is available on the HSN and SAC Code list available on the government website, for your specific service to get the exact rate. 

If your service isn't mentioned in the list, you can assume the GST rate as 18%.

GST rules differ sharply for freelancers based on client location, affecting registration, rates, and compliance. Domestic clients trigger standard GST charges, while international ones qualify as zero-rated exports.

There are two schemes under GST registration for freelancers in India, a regular scheme and a composition scheme. A regular scheme has no limitations as such. But under the composition scheme, you cannot have a turnover that surpasses ₹50 lakhs, nor can you make inter-state sales. 

Regular scheme

Under this scheme, you, as a registered person, charge GST (generally 18%) from your client and pay it to the government. And at the same time, if your client is also a business registered for GST, they can claim input tax credit and ultimately do not bear the cost of the tax they paid you. 

You can provide services in other states and countries without any restriction on the annual turnover under the regular scheme.

Composition scheme

This scheme is specifically for freelancers with a turnover of less than ₹50 lakhs. So under this scheme, you pay GST at a rate of 6% on the service you offer, but you cannot benefit from the input tax credit. This scheme is mainly for the small service providers that offer their services to unregistered local clients.

As a GST-registered freelancer, you must issue GST-compliant tax invoices for every supply above ₹200, including the GSTIN of supplier and the recipient, SAC of services, date, taxable value, signature.  If the value of the supply is less than ₹200, you can issue a consolidated tax invoice for the aggregate value of all such supplies at the close of each day.  

Ensure proper invoicing to meet legal compliance and avoid penalties under Section 122 of the CGST Act.

Here are some key invoice elements:

• Supplier details like the name, GSTIN, address, and state code.
• Recipient details like the name, address, GSTIN (if registered)  and for exports, mark 'export of services'.​ 
• Data of issue.
• Description or service details with SAC/HSN code (e.g., 998314 for IT services), quantity, rate, total value
• GST rates: CGST/SGST/ IGST each. GST provides a fixed rate for each service and five slabs for tax rates: 0%,5%, 12%, 18% and 28%. Zero for LUT exports.​
• Taxable amount, GST, and grand total. Add an e-way bill if goods are involved.
• Authorized signature or a digital signature.

And if you have international clients, use invoice format minus the GST. State's supply under LUT/bond with FIRC reference post-payment.

Just like any other taxpayer in India, freelancers need to file their GST returns. To avoid penalties and to maintain spotless GST records, compliance is necessary. According to your annual turnover, you can determine the number of times you need to file for GST.

If you are an Indian freelancer providing services to foreign clients, your income is an 'export of service' and is zero-rated under the GST laws, provided you do not cross the threshold amount of ₹20 lakhs. But GST for freelancers is applied on the fees charged by banks and cross-border money transfer services for forex conversions.

The key considerations to become a 'zero-rated export':

• The service provider, i.e., you, is located in India.
• The client is located outside of India.
• The place of supply is outside India.
• You receive payments in convertible foreign currency.
• You and your client do not belong to the same company.

And as an exporter you have two choices:

• You can file a Letter of Undertaking (LUT) annually on the GST portal to export your services without paying any IGST upfront. You can still claim Input Tax Credit (ITC) for GST paid on your business expenses (e.g., software, rent).

• You can pay IGST at the applicable rate on your export invoice and then claim a refund of the tax paid later. 

GST compliance trips up many freelancers because rules are scattered and easy to misread. Here are some of the most common mistakes freelancers make that you need to avoid:

• Not registering for GST on time.
• Not applying or renewing LUT on time.
• Ignoring RCM (Reverse Charge Mechanism).
• Not issuing proper GST-compliant invoices.
• Misunderstanding  the export of services.
• Missing GST filing deadlines.
• Poor documentation of FIRC/e-BRC.
• Wrongly classifying export vs domestic services.
• Skipping nil returns when there is no income.
• Ignoring e-invoicing rules at higher turnover.
• Filing returns with incomplete or wrong figures.
• Overlooking advance tax and TDS under Income Tax.
• Claiming ineligible Input Tax Credit (ITC).

Xflow is a cross-border payments receiving platform that is designed exclusively for Indian freelancers and businesses. It helps you to collect global payments in a compliant, low-cost way. Xflow offers a feature-rich invoicing tool that lets you create custom invoices that reflect your brand image. All the bank transfer instructions are then added to your Xflow invoices automatically to avoid any errors. 

Xflow provides eFIRA (Foreign Inward Remittance Advice) for every transfer you receive. This document is issued by Xflow's  RBI-authorized banking partners to ensure compliance. You can use this eFIRA as proof of export proceeds for GST, LUT and your income tax documentation. 

Xflow also guarantees settlements within 24 hours, along with transparent pricing and zero FX markup. This pricing structure and clarity make it easy to estimate net receipts for GST and income tax planning.

GST for freelancers in India helps to keep taxes simple, but requires careful steps. It helps you to plan your business strategy and get international clients to ensure maximum profits. When you register under GST, it also opens up the market of MNCs or government clients for you, along with access to input credits. 

If you are a freelancer with foreign clients, you must also consider your foreign exchange receipts to claim export benefits like the 'zero-rates' export services under Section 16.

To simplify international payments collection with eFIRC compliance, visit Xflow's site today!