Essential Compliance Checklist for Freelancers: Accounting, GST, and More…

With the shift toward remote work and an increasing emphasis on work-life balance, the gig economy has seen significant growth in recent years, with freelancers becoming an integral part of various industries.  
 
However, navigating the compliance landscape can be challenging. 
 
This article outlines the key compliance requirements for freelancers regarding their income, ensuring they meet their obligations under Indian tax laws. 

Who is Considered a Freelancer? 

A freelancer is defined as a person who “provides services under contract” and is not covered by the same employment regulations as employees of an organization. 
 
Therefore, freelancers are subject to various compliance requirements, particularly related to GST and income tax. 
 

GST Compliance 

Freelancers, like service providers, must adhere to the same GST requirements as service firms.  

When to Register for GST 

You need to register if: 

1. Annual Revenue: Your total revenue exceeds ₹20 lakhs (₹10 lakhs for North-Eastern States). 

OR 

2. Export Services: You must register for GST as per the ACT if you’re into export of services (which includes providing freelancing services to international clients), irrespective of the threshold limit. The export is considered as an inter state supply under the GST Act 

OR 

3. In case of affiliation with payment gateways/E-Commerce portals: If you use payment gateways for transactions or E-Commerce portals, GST registration is mandatory. 

Applicable GST Rates for Freelancers 

Freelancers are generally service providers. GST rate for service business is 18%. Hence, freelancer are required to charge GST at 18% rate. 

Input Tax Credit (ITC) 

Freelancers, if registered under GST can claim ITC, which allows them to offset taxes paid on purchases against the GST owed on sales. Example: GST on laptops, mobile phones, etc. for business use are eligible for GST input claim and help you reduce their cost. 

Eligible Claims 

Freelancers can claim ITC on: 

• Office Supplies: Stationery and equipment. 

• Software Subscriptions: Costs for tools needed for services. 

• Professional Services: Fees for professional and consulting services. 

• Utilities and Rent: GST on office space and utilities. 

• Payment Platforms: GST on transaction fees from platforms like PayPal, Stripe, etc. 

• Business Assets: GST on assets like laptops, phones, and other equipment essential for business operations. 

• Other Business Expenses: Additional eligible assets and expenses as allowed under the GST Act. 

To maximize ITC, ensure your suppliers are GST-registered and keep accurate records.​ 
 
 

GST Returns 

As a normal taxable person, freelancers are required to file 25 GST returns as under- 

• Monthly: 

• GSTR-3B: Summary of sales, input tax, and payments (can be filed quarterly, if below threshold limit, but tax is payable monthly). 

• Quarterly: 

• GSTR-1: Details of sales invoices and exports (can be filed quarterly, if below threshold limit). 

• GSTR-9C: Reconciliation statement, if applicable. 

Timely filing is essential to avoid penalties. 
 

Late Filing Penalties 

1. A late fee of ₹200 per day, along with 18% annual interest on the amount due. 

2. A minimum penalty of ₹10,000 for non-payment of tax. 

3. A maximum penalty of 10% of the total tax due for late filing. 

How to pay GST on services offered to International Clients? 

LUT(Letter of Undertaking) 

Under GST Law, If you have an LUT, you can export services without paying GST, subject to certain conditions.  Meaning GST doesn’t apply to sales made to international clients, if certain conditions are followed. 

Paying GST on Reverse Charge Basis 

Reverse Charge Mechanism (RCM) under GST –  

It is an important provision for freelancers and businesses who are importing services in India.  

Example: RCM applies when paying for LinkedIn Premium or any software services sourced from abroad. 

Key Points to Understand RCM: 

1. Who Pays the Tax? 
   You have to pay GST directly to the government for import of services. 

2. Reporting Requirements: 
   Report these transactions in GSTR-3B forms. A self-invoice may be necessary. 

3. Input Tax Credit (ITC): 
   You can claim ITC on GST paid in the same month after it has been paid to the government. 

4. Timing of Supply: 
   The supply is deemed to occur at the time of payment receipt or invoice issuance, whichever is earlier. 

Accounting & Book-keeping 

While managing accounts and bookkeeping is not mandatory under any act for freelancers.  But maintaining accurate transaction records (including sales, purchases, platform commissions, and payment gateway fees) helps freelancers track expenses and determine profits, which are vital for GST and income tax compliance. 

Discrepancies in accounting and GST data can be a breeding ground for interests and penalties. 
 
Key Benefits of Accurate Bookkeeping: 

• Revenue and Profitability: Track income and assess profitability for sustainability. 

• Expense Tracking: Identify deductible expenses, optimizing tax liability. 

• Compliance: Simplifies tax filings and ensures regulatory adherence. 

Income Tax 

Freelancers’ have an option to file income under normal provisions or under “Presumptive Taxation” (Section 44ADA/44AD), whichever is more beneficial. 

 
Presumptive Taxation Scheme  

(Section 44ADA) 

• Eligibility: For professionals whose gross receipts do not exceed ₹75 lakhs. 

• Income Calculation: It presumes income at 50% of gross receipts, meaning you do not need to claim individual business expenses. 

(Section 44AD) 

• Eligibility: For businesses whose gross receipts do not exceed ₹3 crore. 

• Income Calculation: 
  – 8% of turnover/gross receipts for cash or non-digital transactions. 
  – 6% of turnover/gross receipts for digital transactions. 

(Exclusions: Certain businesses, such as those involved in agency work or earning commission income, are not eligible for presumptive taxation.) 

Reporting Income under PGBP  

• Flexibility in Reporting: Freelancers can choose not to use the presumptive taxation scheme and instead report actual business income, allowing for expense deductions. 

• Deductible Expenses: 

• Depreciation on Assets: Equipment and tools used for freelancing. 

• Office Overheads: Utilities, internet, and supplies. 

• Office Rent: If a dedicated workspace is rented. 

• Client Meeting Expenses: Travel and meal costs related to client meetings. 

• Contracting Costs: Payments to other freelancers or contractors. 

• Any other eligible business expenses 

Tax Slabs  

* Surcharge Rates: Up to ₹50 Lakh: Nil, Above ₹50 Lakh to ₹1 Crore: 10% 

   Above ₹1 Crore to ₹2 Crore: 15%, Above ₹2 Crore to ₹5 Crore: 25% 

   Above ₹5 Crore: 37% (only under Old Tax Regime) 

* Health & Education Cess: 4% on income tax plus surcharge (if any) for both regimes. 

* Rebate under Section 87A: 

• Old Tax Regime: Up to ₹12,500 for income up to ₹5,00,000. 

• New Tax Regime: Up to ₹25,000 for income up to ₹7,00,000. 

Possible Tax Saving Deductions for Freelancers 

Tax Deductions Allowable Under Old Regime:  

• Section 80C: Deductions for investments in life insurance premiums, home loan principal, pension plans, ELSS, SSY, and SCSS. 

• Section 80D: Deductions for medical insurance premiums. 

• Section 80E: Tax deductions for education loan interest. 

• Section 80EEA: Interest deduction on home loans for first-time homeowners. 

• Section 80G: Deductions for donations to social causes. 

• Section 80GG: Deductions for paid house rent. 

• Section 80TTA: Interest deductions for savings account holdings. 

• Section 80U: Deductions for individuals with disabilities. 

* These deductions will not be available to a taxpayer opting for the new tax regime u/s 115 BAC. 

Deduction allowable under new regime:  

• Section 80CCD(2): Deductions for employer contributions to Central Government pension schemes.  

• 80JJAA: Deductions for employment generation, applicable to new workers.  

ITR Filing 

• ITR-4: For filing if opting for the Presumptive Taxation Scheme. 

• ITR-3: For filing if not opting for the Presumptive Taxation Scheme. 

Advance Tax  

Advance Tax operates as a “pay-as-you-earn” system, requiring you to pay income tax in installments throughout the financial year if your total tax liability exceeds ₹10,000. 

Steps to Calculate Advance Tax: 

1. Estimate Income: Project your yearly income, including earnings from freelancing and any other sources. 

2. Deduct Expenses: Subtract eligible expenses and deductions (e.g., under Sections 80C, 80D). 

3. Calculate Tax: Apply applicable tax slab rates to your taxable income. 

4. Subtract Credits: Deduct TDS/Advance Tax or other tax credits. 

5. Divide Payments: Split the calculated tax into installments based on due dates. 

Due Dates for Installments: 

• 15th June: 15% of total tax 

• 15th September: 45% (cumulative) 

• 15th December: 75% (cumulative) 

• 15th March: 100% (cumulative) 

Penalties for Non-Payment: 

• Section 234B: Interest if less than 90% of the total tax is paid. 

• Section 234C: Interest for underpayment per installment. 

• Section 234A: Penalty for failing to make the final payment. 

Exemptions: 

• No advance tax is required if total tax liability is below ₹10,000. 

• Senior citizens with no business income are also exempt. 

TDS (Tax Deducted at Source) 

Under Section 194J, 

• Threshold Limit: TDS applies if your payment for professional or technical services exceeds ₹30,000 in a financial year. 

• Rate of Deduction: 

• Professional Services: 10% 

• Technical Services: 2% 

• Royalty: 

• Cinematic Films: 2% 

• Other Royalty: 10% 

• No PAN: 20% 

• Time of Deduction: At the time of passing an entry in accounts or making the payment, whichever is earlier. 

Case Study: TDS on Professional Services 

Scenario: Mr. Raj, a freelance consultant, provided professional services to the clients. In FY 2023-24, clients made the following payments: 

• Client 1: ₹45,000 for consultancy services  

• Client 2: ₹25,000 for consultancy services  

Analysis: 

1. Threshold Check: The first payment exceeds the ₹30,000 limit, while the second does not. 

2. TDS Applicability: 

• For Payment 1 of ₹45,000: 

• TDS at 10% = ₹4,500 must be deducted. 

• The client liable to deduct TDS may deduct this amount when processing the payment. 

• For Payment 2 of ₹25,000: 

• No TDS is required since it does not exceed ₹30,000. 

3. Timing: TDS should be deposited by the 7th of the following month for payments made before March, or by April 30 if made in March. 
   A form 16A must be obtained by a freelancer from the client after every quarterly TDS filing by them. 

You can adjust TDS with your annual income when filing your ITR to align with your total tax liability. 

Professional Tax 

In some states, freelancers must also pay professional tax, with rates and thresholds varying by region. Ensure you stay informed about local regulations and make timely payments. 

Why Staying Compliant Matters 

Non-compliance with these legal requirements can lead to penalties, interest payments, and potential legal issues. Regular compliance not only provides peace of mind but also allows you to concentrate on growing your freelancing business without financial or legal worries. 

 
Simplifying Compliance for Freelancers 

Managing accounting, tax filings, and bookkeeping can feel overwhelming while juggling multiple projects.  
 
At Greenwolf Advisors, we specialize in assisting freelancers with these complexities. Our team provides tailored accounting and GST services that reduces the burden, allowing you to focus on what you do best—your work. 

From GST registrations to monthly filings, advance tax payments, and annual ITR filings, and much more, we’re here to help you stay compliant while saving time and effort.