One of the most crucial and delicate issues since ages is about trade around the globe.
After World War II, world trade took another shape like ‘the General Agreement on Tariffs and Trades’ or the development of the World Trade Organization. While trading internationally, one either export or import goods or services.
The phenomenon that determines the economic condition of a country is termed as ‘current account deficit’. The current account deficit compares and measures the value of imports and exports of a country.
In India, the Goods and Services Tax (GST) is implemented to control and measure its imports and exports.
With the implementation of the GST rules in India, exports of goods and services are exempted from domestic taxes. But, several aspects needed to be addressed by the government related to the exports in India. For this purpose, a ‘zero-rated supply’ is implemented under GST.
Below is an overview of the GST rules for the export of goods and services in India
Export of goods and services under GST
According to section 2(5) of GST, the Export of goods means selling and transporting your products outside the boundaries of a nation.
According to section 2(6) of GST, a service is considered to be an export of service when:
- The service provider is located in India
- The service receiver is located anywhere outside India
- The service is consumed outside India
- The payment is received in convertible foreign exchange by the service provider
- The service provider and the service receiver are two distinct people
GST and exports
Under section 7(5) of the IGST Act, the export of goods and services are treated as inter-state supply and GST is charged accordingly.
Under section 16(1) of IGST, Zero-rated supply shall apply to the export of goods and services which implies that the export of goods and services shall be exempted and should be levied either initially or at the final stage of the export.
Brief description of Zero Rated Supply
As mentioned earlier, according to section 16(1) of the IGST Act, Zero-rated supply means the export of goods and services is exempted from taxes of a registered taxpayer but the Input Tax Credit (ITC) would be applicable for such individual.
This implies that the exporter may apply for a GST refund.
How to claim the GST refund
According to Section 16(3) of the IGST Act, there are two ways through which a person can claim the GST refund under the Zero Rated Supply Act, these are:
- The supplier of goods and services can get an undertaking or bond from the government under which he will not have to pay GST and should claim a refund of unutilized GST regularly.
- The supplier of goods and services can pay the GST and then claim the refund of the taxes paid.
The process of claiming the refund for exporting goods/products is different from that of the process of claiming the refund for providing services outside the nation.
In the case of the export of commodities, the shipping bill itself is considered as the application for refund.
The refund amount is credited directly into the bank accounts of the exporter registered with the customs. This bank account could be different from the one mentioned in the registration particulars.
This procedure makes the refund process smooth and simple.
In the case of the export of services, the exporter cannot get the refund directly into their bank accounts. The service exporter has to file certain documents with the jurisdictional GST officer at a place where the company is located.
The documents that a service exporter would need to file with the GST department to obtain the GST refund without which the GST would not be refunded are:
- A cover letter
- Bank Realization Certificates or Foreign Inward remittal Certificates
- Export Invoices
- Form GSTR 3B and GSTR 1
- Application for Refund within the kind GST RFD 01
- Cancel cheque
If GST refunds claims exceed ₹2 lakhs (₹200,000 or ~$3,000) per quarter a certificate from a chartered controller/Cost Accountant.
The Laws for Freelancing in India:
What does freelance mean?
Freelance refers to a job contract where an individual provides services based on his intellect and manual skills to another person on mutually agreed rates.
Freelancing could be a short-term or a long-term contract depending upon the mutual agreement of both parties. It is not a fixed salaried job; neither the freelancer is required to move to the workplace and can work at the leisure of his home or any place he likes.
Also, the freelancer does not get other benefits unlike other permanent employees such as ‘Provident Fund’, ‘Insurance’, etc. Any income that is earned with such service is considered as the income from the profession as per the income tax laws in India.
This income is taxable as “Profits and Gains from Business or Profession” by the “Companies Act” in India.
When a Freelancer is liable to be registered under GST?
A freelancer needs to get himself registered under the GST rules in India:
- When his turnover for a financial year exceeds Rupees 20 lakhs in general cases and Rupees10 lakhs in case of North-east region.
- When a freelancer is providing services that fall under “Online Information and Database Access and Retrieval services (‘OIDAR’).
- If the value of service provided in more than Rupees 20 lakhs.
Services that fall under OIDAR are:
- Internet Advertisements
- Cloud Services
- Providing services through the internet such as e-books, software, music, etc.
- Providing data or information through electronic mode.
- Online gaming services
Applicable tax rates for freelancers:
Any freelancer whose gross income exceeds Rupees 20 lakhs during a financial year is liable to pay taxes under GST. He shall charge the same from the clients.
The tax rates shall apply as per the respective slab rates.
According to the GST laws, the invoice raised by a freelancer should include name, address, GST registration number of the freelancer as well as of the client, date, signature and the amount charged.
Under the Income Tax Act, the expenses incurred during the process of providing the services by the freelancers are allowed for deductions from the gross income.
These expenses must be incurred exclusively for providing the services to the clients. These expenses vary from traveling expenses to office furniture and anything that is incurred to fulfill the responsibilities.
Some of the conditions where the expenses are allowed as a deduction from the total income of the freelancer are:
- Property Rent
If a freelancer rents some property to carry out the required work, the amount of rent shall be deducted from the gross income.
- Expenses on Repairs
If the freelancer has paid for the repairs of the rented or owned property, those repair expenses are liable to be deducted.
Any repairs to the office equipment such as laptops, printers, etc. are also deducted.
The depreciation cost of the capital assets is also liable to be deducted as they are treated as expenses to the freelancer.
- Office Expenditure
Any amount that is incurred on the office equipment such as the purchase of a laptop, as well as the office bills like internet bills, telephone bills, electricity bills, is also liable to be deducted for tax calculation purposes.
- Travel Expenditure
If a person needs to travel to different locations to complete his tasks or to meet with the clients, etc., the expenses incurred on traveling shall be deducted from the gross income.
- Hospitality Expenses
If a freelancer incurs expenses on the hospitality of the client like providing dinner or some outings, entertainment, etc. those expenses shall also be deducted.
- Accounting basis for Freelancers:
There are two types of the accounting system and the freelancer can choose any one of the two. These are:
- Accrual Basis of Accounting (Also known as Mercantile accounting)
- Cash Basis of Accounting
Freelancers can choose any of the accounting methods for keeping their books of accounts, but the freelancer is bound to keep one method of accounting for all its clients, all its revenues, and all its expenses.
The Income Tax Act under section 44AA and Rule 6F have made it a mandate that one of the two types of books of accounts shall be maintained by freelancers to pay Income Tax.
Thus, the net taxable income is calculated as:
Net Taxable Income= Gross Taxable Income-Deductions
The total amount that can be reduced as a deduction from the gross taxable income shall not exceed Rupees1.5 lakh.
Any person with an age less than 60 years and has a net taxable income of Rupees 2.5 lakhs is liable to pay taxes under the Income Tax Act.
In the case of a freelancer, if the total tax liability is more than Rupees 10,000 (ten thousand) during a financial year, then he is liable to pay taxes quarterly. This tax is known as “advance tax”.
Payment of Advance Tax
The advance tax could be paid either online at the IT Department’s website or by filling a paper challan and depositing it into the bank account.
The freelancer has to bear severe penalties in the form of interests if the advance tax is not paid by the due dates and which shall also not be deducted from the Gross Income for tax calculations.