[ This post is a Wordcon contribution to the Freelance Ecosystem of India. This is not a tutorial for GST nor written by Tax professional. It is a synthetic analysis of the situation with analytic part coming in the next post. Some excepts are taken from the book entitled – LICENSE, TAX, REGULATION – a HANDBOOK FOR INDIAN FREELANCERS, authored by Pritam Bhattacharyya and Pinaki Taluukdar and to be published by Freelance Foundation. The Handbook will be launched soon.]
- Tax and Death are the only two sureties of Life. Whether it is a democracy, a monarchy, a republic – tax must be paid. Taxation and War are two areas of human affairs which are thrust upon us.
- Pre GST (EXPORT) : All service exports by a freelancer to a) a foreign country b) doing the service based in India c) receiving payment in foreign currency and the d) consumer of the service no way related to you were exempt of goods of services tax. The premise was that : “tax of one country cannot be exported to another country.”
- Post GST (EXPORT) : The fundamental premise remains – “tax of one country cannot be exported to another country.” but the freelancer now must get some kind of confirmation from the state that his services are exported. Translation: More paperwork/keyboard work and another layer of interaction with the state bureaucracy.
- Pre GST (DOMESTIC or NON-EXPORT) : Every nation since antiquity has taxed economic activities to get revenue. This is indirect tax. We get tax records of Sumer civilization in clay tablets. Tax was either paid by kind or by cash. In modern times, tax is always paid in cash. The services were taxed and the tax was called Service Tax. All freelancers whose turnover was more than 9 L INR from domestic clients in previous year was supposed to pay service Tax. Most of the solo freelancers did not have such a turnover solely from freelance work and it did not have much talk.
- Post GST (DOMESTIC or NON-EXPORT) : If you have a single client outside the state of your registration, you come under inter-state trade and must register or you have turnover above 20 L. Things need clarification here. However, one thing is clear, the more your business grows and if you have the good fortune to have a foreign client, you must register.
Now some most important future-looking issues
- To GST or not to do GST, the dilemma is real and palpable. The answer is : if you are interested to develop your business and try to work with larger clients, you should have GST. The overriding reason is that those businesses will prefer to work with someone whose tax they need not pay and GST (company) < – > GST (freelancer) mapping will be clear and straightforward. All other things remaining same, they will prefer a GST registered freelancer.
- Another very powerful and significant fact is that GST is revenue neutral after 20 Lac threshold. It means that if your business grows and you start working with 2 more team members as a company with proprietorship status, you can continue with the GST with no other in-direct tax (you still pay your Income Tax) issues. This means that you are free to conduct business without any threshold or any other tax issues to bother. Get customer, deliver service, pay GST.
- This freedom comes with a price : 37 reports are to be filed per year. 12 * 3 + 1 annual. This means that the transactions of your business will be in “GST cloud”. Think Gmail to have an idea.
- This also means that all the GST you have paid for running your business now gets recorded and mapped and becomes your GST credit. So the GST you pay at the end of the year is (GST collected from clients) – (GST you have paid for running your business) . GST you have paid for running your business = ITC (input tax credit)
- Just like an individual in India has PAN and this Income Tax ID is “networked” – as in TDS where each PAN is mapped to +/- of taxes deducted, taxes remaining, GST will be such for a business once the dust settles in.
GST – Cost Benefit Analysis
- More paper work and administrative hassles.
- Cost 37 (Filings over the year and you may have to keep a freelance accountant / CA)
- Huge confusion as of now
- You can think of expanding your business – in the same vertical or related verticals.
- From a freelancer writing content, you can become seller of ethnic dolls – nothing else is needed.
- All the input indirect tax you had no way to claim earlier can be now be claimed – or at least there is a mechanism of having recorded.
- From the fundamental premises mentioned at the outset, it is judicious and prudent to be registered.
- It is important to have a good (and cost-effective) CA / professional who will understand your business and handle these for you.
- This forces you to keep total record of your business and with structured data, you can analyse your business health in a much better way.
- You are free to trade now – that is great sense of freedom, too.
- Once the dust settles in, once the mechanism becomes stable and many questions resolved through practice, experience and litigation (lawyers are freelancers too.), the situation will be easier to navigate and more balanced view will emerge
Recommendation for Freelancers with GST the movie : Recommend. Buy tickets online at : https://www.gst.gov.in/
[ In next post, we shall discuss the analytic part. We are conducting Wordcon – 3rd International Freelancer’s Conference on 3rd February 2018 at The Park, Calcutta where we shall discuss further with 150+ freelancers and small businesses present. ]