With increasing aspiration of the skilled young professionals, the freelancing or gig work is hugely attracting them. Freelancing is performing project based tasks based on his/her skills without working under a company or organization. That means you have no boss over you. But, I have to complete the task with utmost attention and skills.
Gigs are the people who perform freelancing work such as delivery partners for e-commerce or online food ordering platforms. You can assume ride sharing and delivery tasks, or you get temporary tasks or contractual work from your employer. In Indian context, Gig workers are usually referred to as low income freelancers where programming or digital skills are not required.
But, the chapter does not end here. When you start earning from business or freelancing work, you will be liable to pay tax to the Government. In this comprehensive post, I will explore the taxation scenario for freelancers and gig workers in India, covering both Goods and Services Tax (GST) and Income Tax.
Implication of Goods and Services Tax (GST)
First, I will discuss the implication of GST on Gigs or freelancers:
- GST liability starts when your turnover exceeds Rs.20 lakhs in a year.
- Yes, you require GST registration, if the threshold limit exceeds Rs.20 lakhs.
- You will have to file a GSTR-3B return (monthly/Quarterly), pay tax every month after getting GST registration, and
- Need to file Annual returns (GSTR-9 and GSTR-9C), when annual turnover crosses Rs.5 Crore.
- GST rate is 18% on services provided and for export of services, you can avail exemption by filing LUT online through GST Common portal, it means no need to charge 18% from your client when providing services outside India, and You can also take refund of accumulated input tax credit (inputs required like software, laptop to export services).
Remember: Software related service, other gid services like repair, installation, etc., is taxed at 18% under GST. However, there are different tax rates on different services. For example, You have to charge 5% GST on cab services. There are services which are taxed equal to the GST on similar or liked goods.
Composition Levy on Freelancing Services
Under GST, Section 10(2A) has outlined the tax rate of 6% on supply of services within the state or intra-state supplies. The turnover should not exceed Rs. 50 lakhs in a year. You can supply services within your state and just pay 6% on your total turnover. It is to note that you are not eligible to charge this 6% of tax from your client.
Also if you supply your freelance services outside State or Outside Country, you need to file GSTR-3B returns and pay tax at the rate of 18% or whatever, if applicable.
Learn more about Services under HSN 9973 and Services under HSN 9954
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Implication of Income Tax
Now, we will discuss the implication of income tax on you.
- You will be taxed as per individual income tax slab. You can choose the old tax regime or new tax regime as per your convenience and calculation.
- You will have to declare your income as “income from business”. You will need to file ITR-3 to show all expenses and earnings and can file ITR-4, if annual turnover does not exceed Rs.50 lakhs. You will need to search for the section titled “Profits and Gains from Business or Profession” in your Income tax returns. Within this section, you’ll find separate heads for various income sources (e.g., income from freelancing services, income from consulting services, etc.)
- You can take depreciation costs of inputs used like software, rent to reduce the tax liability.
This will help you in getting a clear picture of taxation on freelancing or gig work in India, but I would still recommend referring to CA, who can understand your nature of services precisely provided by you, and on that basis, returns will be filed.
Why Young professionals opting freelance work
Flexibility: It offers you flexibility in work schedule and location, allowing individuals to choose projects that fit their needs and lifestyle.
Skill-Based Income: Freelancers and gig workers earn based on their skills and the value they deliver on each project.
Limited Benefits: Unlike traditional employment, gigs often lack benefits like health insurance, paid leave, and job security. But, the Government of India is bringing social benefits to the gig workers who are engaged in fields.
Tax Implications: As a freelancer or gig worker, you are responsible for managing your taxes, including income tax and potentially GST (Goods and Services Tax) if applicable.
Conclusion
With a growing economy, demand for skilled professionals by various sectors, the freelancing and gig workers are very much in demand and paid as per task or hourly basis. This gives more flexibility and potential to earn more, besides spending time with family.
Overall, “gigs” in India represent a dynamic and evolving work model. While offering flexibility and income opportunities, it’s crucial for you as a freelancer to understand the associated challenges and manage your financial and social security needs effectively.
