GST and Freelancers – Comprehensive Guide

GST implications for services provided by freelancers to international clients..!!

When freelancers in India provide services to international clients, the Goods and Services Tax (GST) implications are primarily governed by the provisions related to the export of services under the Integrated Goods and Services Tax (IGST) Act, 2017. Here is a comprehensive explanation of the GST implications for such services:

Definition of Export of Services

Under Section 2(6) of the IGST Act, 2017, a supply of services is considered an "export of services" when the following conditions are met:

1. Supplier Location: The supplier of the service is located in India.

2. Recipient Location: The recipient of the service is located outside India.

3. Place of Supply: The place of supply of the service is outside India, as determined by the provisions of Section 13 of the IGST Act.

4. Payment: The payment for the service has been received by the supplier in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India (RBI).

5. Distinct Establishments: The supplier and the recipient are not merely establishments of a distinct person.

Zero-Rated Supply

Services that qualify as exports are treated as zero-rated supplies under GST. This means that no GST is charged on the export of services, but the supplier is eligible to claim input tax credit (ITC) on inputs and input services used in providing the exported service. The supplier can choose one of the following options for zero-rating:

• Option 1: Supply the service under a bond or Letter of Undertaking (LUT) without payment of IGST and claim a refund of the unutilized ITC.

• Option 2: Supply the service on payment of IGST and claim a refund of the IGST paid after the supply is made  .

Place of Supply Rules

The place of supply for services is generally determined based on the location of the recipient. For services provided to international clients, the place of supply is outside India, which is a key condition for the service to qualify as an export  .

Implications for Freelancers

• Registration: Freelancers providing export services are required to register under GST if their aggregate turnover exceeds the threshold limit. However, since exports are zero-rated, the turnover from exports is not subject to GST.

• Invoicing: Freelancers must issue invoices in accordance with GST rules, mentioning the details of the export and the fact that it is a zero-rated supply.

• Documentation: Proper documentation, such as a bond or LUT, is necessary to support the claim of zero-rating and to facilitate the refund process.

• Refunds: Freelancers can claim refunds for the unutilized ITC or the IGST paid, depending on the option chosen for zero-rating.

Recent Clarifications and Updates

The GST Council and the Central Board of Indirect Taxes and Customs (CBIC) have issued various clarifications to address concerns related to the export of services. For instance, Circular No. 78/52/2018-GST provides guidance on the treatment of outsourced services and the conditions under which they qualify as exports.

Conclusion

Freelancers providing services to international clients can benefit from the zero-rated supply provisions under GST, which allow them to export services without the burden of GST, while still being able to claim input tax credits. It is crucial for freelancers to ensure compliance with the conditions for export of services and maintain proper documentation to avail of the benefits under GST.

How can freelancers claim GST refunds for services provided to international clients?

When freelancers in India provide services to international clients, they can claim GST refunds under the provisions related to zero-rated supplies. Here is a detailed guide on how freelancers can claim GST refunds for such services:

Understanding Zero-Rated Supplies

Under the GST regime, exports of goods and services are considered zero-rated supplies. This means that while no GST is charged on the export, the supplier is eligible to claim a refund of the input tax credit (ITC) on inputs and input services used in making the export.

Options for Claiming Refunds

Freelancers have two options to claim GST refunds for services provided to international clients:

1. Supply under Bond or Letter of Undertaking (LUT) without Payment of IGST

   • Freelancers can export services without paying IGST by furnishing a bond or LUT. This allows them to claim a refund of the unutilized ITC.

   • Documentation Required: A statement containing the number and date of invoices, and the relevant Bank Realisation Certificates (BRC) or Foreign Inward Remittance Certificates (FIRC)   .

2. Supply on Payment of IGST and Claim Refund of IGST Paid

   • Freelancers can choose to pay IGST on the export of services and subsequently claim a refund of the IGST paid.

   • Documentation Required: Similar to the first option, including BRC/FIRC and a statement of invoices   .

Steps to Claim GST Refund

1. Filing the Refund Application

   • Freelancers must file the refund application in Form GST RFD-01 on the GST portal.

   • The application should be filed within two years from the relevant date, which is the date of receipt of payment in convertible foreign exchange.

2. Submission of Required Documents

   • Invoices: A statement containing the number and date of invoices related to the export of services.

   • BRC/FIRC: Proof of receipt of payment in foreign exchange.

   •  GSTR-2A/2B: Copy of  GSTR-2A/2B for the relevant period to verify the input tax credit claimed   .

   • Self-Declaration: A self-declaration regarding non-prosecution under GST laws for availing provisional refund   .

3. Verification and Sanction of Refund

   • The GST authorities will verify the application and the documents submitted.

   • A provisional refund of 90% of the total refund claim may be sanctioned initially, with the remaining 10% being refunded after due verification   .

4. Principle of Unjust Enrichment

   • The principle of unjust enrichment does not apply to refunds on account of exports, meaning the refund is directly credited to the exporter   .

Important Considerations

• Timely Filing: Ensure that the refund application is filed within the stipulated time frame to avoid rejection.

• Accurate Documentation: Maintain accurate and complete documentation to support the refund claim.

• Compliance with GST Rules: Adhere to all GST rules and regulations to ensure a smooth refund process.

Conclusion

Freelancers providing services to international clients can effectively manage their GST obligations by understanding the provisions related to zero-rated supplies and following the correct procedure for claiming refunds. Proper documentation and timely filing are crucial to successfully claiming GST refunds.

What documents must freelancers provide to demonstrate that the service is exported and facilitate their refund claims?

When freelancers in India provide services to international clients, they need to ensure proper documentation to prove that the service is exported and to claim GST refunds. Here is a detailed list of documents required for this purpose:

Key Documents Required for Proving Export of Services

1. Invoices

   • A statement containing the number and date of invoices related to the export of services is essential. This statement should be prepared in accordance with Rule 89(2)(c) of the CGST Rules    .

   • Self-certified copies of invoices entered in Annexure-A whose details are not found in GSTR-2A/2B of the relevant period should also be maintained    .

2. Bank Realisation Certificates (BRC) or Foreign Inward Remittance Certificates (FIRC)

   • These certificates serve as proof of receipt of payment in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India. They are crucial for establishing that the payment for the exported service has been received       .

3. GSTR-2A/2B

   • A copy of GSTR-2A/2B for the relevant period is required to verify the input tax credit claimed. This document helps in cross-verifying the details of the input tax credit with the invoices submitted    .

4. Self-Declaration

   • A self-declaration regarding non-prosecution under sub-rule (1) of rule 91 of the CGST Rules for availing provisional refund is necessary. This declaration confirms that the freelancer has not been prosecuted for any offense under the GST laws    .

5. Statement of Invoices (Annexure-B)

   • This statement should include all the invoices related to the export of services. It is a comprehensive list that supports the refund claim    .

Additional Considerations

• Timely Filing: Ensure that all documents are filed within the stipulated time frame to avoid any delays or rejections in the refund process.

• Accurate Documentation: Maintain accurate and complete documentation to support the claim of export of services and the subsequent refund claim.

• Compliance with GST Rules: Adhere to all GST rules and regulations to ensure a smooth refund process.

Conclusion

Freelancers must ensure that they have all the necessary documentation in place to prove the export of services and to claim GST refunds. Proper documentation and adherence to GST rules are crucial for successfully claiming refunds. For further assistance, freelancers may consult with a GST professional or refer to the latest notifications and circulars issued by the GST authorities.