- Shirish Gupta
Information beyond CA:Is GST registration mandatory for Software freelancers/Consultants/exporters o
There is a lot of confusion regarding registration requirement for individual freelancers providing services overseas and getting remittances in foreign currency (Service exports).
The confusion roots from below two sections of the GST act:
Section 23 of CGST Act
Persons not liable for registration
23. (1) The following persons shall not be liable to registration, namely:––
(a) any person engaged exclusively in the business of supplying goods or
services or both that are not liable to tax or wholly exempt from tax under this Act or
under the Integrated Goods and Services Tax Act;
(b) an agriculturist, to the extent of supply of produce out of cultivation of land.
(2) The Government may, on the recommendations of the Council, by notification, specify the category of persons who may be exempted from obtaining registration under this Act.
Exemption from registration under section 23(2) of the CGST Act 2017 of –
Individual advocates (including senior advocates)
Individual sponsorship service providers (including players)
In simple words...
This section says you are not required to register for GST if “any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act”
Now please take note “Not liable to tax or wholly exempt tax” does not fall under exports category.
Exports are not “Wholly exempt” but is a “Zero rated supply”. Zero rated supply means that an exporter can claim Input tax credit for his input costs even though GST on exports is zero. This is a huge advantage for an exporter.
“Wholly exempt” category cannot claim Input tax credit.
Domestic freelancers are liable to pay GST hence Section 23 is not applicable to them also.
Hence please note that Section 23 is not applicable to Software freelancers/Consultants/exporters of Services.
Section 22 of CGST Act
In exercise of the powers conferred by section 20 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017) read with sub-section (2) of section 23 of the Central Goods and Services Tax Act, 2017 (12 of 2017) (hereafter in this notification referred to as the said Act), the Central Government, on the recommendations of the Council, hereby specifies the persons making inter-State supplies of taxable services and having an aggregate turnover, to be computed on all India basis, not exceeding an amount of twenty lakh rupees in a financial year as the category of persons exempted from obtaining registration under the said Act.
In simple words...
Sec 22 says that Every Supplier who makes taxable supply of goods or services or both if his aggregate turnover exceeds 20 Lac shall be liable to be registered under the GST act. This is applicable for both intra state and interstate supplies. This was as per amendment notification: Notification No.10/2017 Integrated Tax dated 13.10.2017
However if a person located in special category states then GST registration is needed if turnover exceeds 10 lac.
In GST export of services is defined as an Interstate supply. Hence, as per current guidelines GST registration is needed for a freelance consultant only if his income exceeds threshold of 20 lacs.
GST registration is mandatory for a freelancer only if his turnover “inter state supply of taxable services” exceeds 20 Lacs in a financial year. Otherwise taking GST registration is optional.
Now we need to analyse definition of “Inter state supply of taxable services”
Inter state is defined as...
“Supply of goods and/or services where location of the supplier and place of supply are in two different States; or two different Union territories; or a State and a Union territory.”
“Supply of goods and/or services where location of the supplier is in India and the place of supply is outside India (normally referred to as exports).”
Hence this condition for GST registration not required if turnover is below 20 lacs is fulfilled by both domestic freelancer and exporters of services.
Supply of taxable services is defined as...
“ Taxable supply means a supply of goods or service or both which is leviable to tax under this act.”
Hence for domestic freelancers this condition also fulfils. Hence for a domestic freelancer GST registration is not mandatory if turnover is less than 20 Lacs.
However for service exporters, export is a “Zero rated supply” as defined under section 16 of the IGST Act and it is not “leviable to tax”. If a exporter of services fulfils certain conditions he will not have to pay any GST but that does not exempt from taking GST registration. For exporters GST registration is mandatory in any condition even they may not pay GST. The biggest advantage for service exporters is that they can claim Input tax credit for purchases. This point has been clarified on twitter FAQ answered by GST@GOI on 22nd Dec 2017. (Refer Q3 below in image)
Reference : Twitter
Final Verdict:
I have made flowchart below for clear understanding of GST registration requirement for freelancers (exporter of services or domestic service providers)
This information is based on my interpretation of the law. This blog only is for information purposes not for legal purposes. Hope it helps!
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