GST for Freelance Foreign Income

Freelancing has emerged as a prominent career choice, with many professionals offering their services globally. For freelancers in India earning foreign income, understanding the Goods and Services Tax (GST) implications is crucial to ensure compliance with Indian tax laws. This article provides an in-depth explanation of GST regulations concerning freelance foreign income, addressing its applicability, invoicing requirements, export sales, and practical tips for compliance.

What is GST?

GST is a comprehensive, destination-based indirect tax levied on the supply of goods and services in India. It replaces multiple indirect taxes and streamlines taxation for businesses and individuals alike. Freelancers are considered service providers under GST, and their income may fall under its ambit depending on the nature of their work and turnover.

Applicability of GST to Freelancers

GST is applicable to freelancers if they meet the following criteria:

1. Turnover Threshold: Freelancers must register under GST if their aggregate annual turnover exceeds ₹20 lakhs (₹10 lakhs for special category states such as Mizoram, Manipur, and Nagaland). Turnover includes all earnings across platforms, exempt supplies, nil-rated supplies, and export income (converted to INR).
2. Voluntary Registration: Even if turnover is below the threshold, freelancers can opt for voluntary GST registration to avail input tax credit (ITC) benefits or establish a professional reputation.
3. Nature of Services: GST applies to services provided within India. For foreign clients, the services are classified as exports and treated as zero-rated supplies, provided they meet export criteria.

Is GST Applicable on Foreign Income for Freelancers in India?

No, GST applies to foreign income earned by freelancers in India under specific conditions. The applicability depends on whether the services provided qualify as “export of services” under the GST law. Here’s a detailed explanation:

Export of Services Under GST

For foreign income to be classified as export of services (and thereby zero-rated under GST), it must meet the following conditions:

1. Supplier’s Location: The freelancer must be located in India.
2. Recipient’s Location: The client must be located outside India.
3. Place of Supply: The place of supply must be outside India, as per GST rules.
4. Payment in Foreign Currency: Payment must be received in convertible foreign currency or in Indian Rupees if permitted by the Reserve Bank of India (RBI).
5. Distinct Entities: The supplier (freelancer) and recipient (client) should not be merely establishments of the same entity.

If these criteria are satisfied, the income is considered an export of services and treated as zero-rated under GST. This means no GST is charged on such services, provided the freelancer complies with certain requirements.

Zero-Rated Supplies and Letter of Undertaking 

Zero-Rated Supplies

Under GST, exports are treated as zero-rated supplies. This means that freelancers are not required to charge GST on services provided to foreign clients. However, they must comply with specific conditions:

1. File a Letter of Undertaking with the GST department.
2. Ensure all export documentation is accurate and up to date.

Filing an Letter of Undertaking

A Letter of Undertaking exempts freelancers from paying Integrated GST (IGST) on export services. Steps to file a Letter of Undertaking include:

1. Log in to the GST portal and navigate to the “LUT Filing” section.
2. Provide details such as GSTIN and financial year.
3. Submit the form electronically and await approval.

Invoicing for Foreign Clients

Freelancers must issue GST-compliant invoices for services rendered. Here’s what a compliant invoice for foreign clients must include:

1. Invoice Number and Date: Maintain a unique sequential numbering system.
2. Client Details: Include the recipient’s name, address, and country.
3. Export Declaration: Mention, “Export of Services without payment of IGST under LUT filed on [date], ARN [number].”
4. Service Details: Specify the description, SAC (Services Accounting Code), and value of services.
5. Currency: Invoice can be issued in foreign currency (e.g., USD). Convert values to INR for GST filing purposes.
6. Taxable Value: Show the service value as zero-rated if exporting under LUT.

Reverse Charge Mechanism (RCM) for Platform Fees

Freelancers often work through international platforms like Upwork, Fiverr, and Freelancer.com. These platforms charge service fees, which are subject to GST implications:

1. Import of Services: If the platform is based outside India and charges fees, freelancers may be required to pay GST under RCM.
2. Taxable Platform Fees: If the platform is registered in India and charges GST on fees, freelancers can claim ITC on these payments.

Tax Collection at Source (TCS)

If a platform is classified as an Electronic Commerce Operator (ECO) and registered under Indian GST law, it may deduct 1% TCS on payments made to freelancers. This amount is credited to the freelancer’s GST account and can be utilised to offset GST liabilities.

Challenges for Freelancers with Foreign Income

Maintaining accurate invoices, LUT filings, and FIRC documentation is essential to avoid disputes. Foreign income must be converted to INR based on exchange rates on the invoice date, not the withdrawal date.

Platforms may not provide GST-compliant invoices, leaving compliance solely to freelancers. Understanding GST laws and export rules requires professional guidance.

Conclusion

Navigating GST regulations for freelance foreign income can seem complex but is essential for compliance and professional growth. Freelancers must understand their obligations, maintain accurate documentation, and seek professional advice when needed. By adhering to GST laws, freelancers not only avoid legal penalties but also build a sustainable, globally recognised business. Adopting a proactive approach to tax compliance ensures that freelancers can focus on their craft while contributing to a transparent and organised economy.