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Legal "Must Knows" For Freelancers - GST & More

Legal Requirements For Freelance Work

You are all set to begin a career in freelancing, your dream is to to get paid doing something that you love and at your own schedule.

You want to do things the right way hence it’s imperative to know the legal requirements for freelance work in India. There must be a lot of questions on your mind, confusing technicalities and legalese that we are here to explain to you clearly.

Registration & license for freelance work in India

Let me put this so that there is no doubt. If you’re starting out as a freelancer, it is not essential to register as a proprietorship or company. You can keep working as a individual and quote your PAN number for taxation purposes as long as your annual income from freelancing does not exceed 20L per annum. TDS (Tax deducted at source will be processed on your PAN card and reflect on your income tax)

In other words you do not need any kind of trade license to start freelancing in India if you earn below 20L per annum but it is a good idea to at least register as a basic proprietorship for various business related reasons like.

  • You can open a current account in a bank and issue receipts in your company name (in case you want to accept payments more than 10L

  • You can claim input tax credit of GST for your business related expenses

Freelancer tax in India (GST & income tax)

Just like any individual who earns any sort of income, freelancers too have to pay taxes according to government regulations.

GST for freelancers

When a freelancer’s annual income exceeds Rs. 20 lakh in a financial year (all states in India except the North Eastern States), she is applicable for a GST registration. She needs to pay the 18% goods and services tax (for most services) from any income earned from freelance services (that are mostly done online). For North East Indian states the limit is 10L per annum.

The rate is 18% for most freelance services provides however there might be exceptions. For a list of GST rates for services click here.

Freelance income tax

Income tax laws in India state that any revenue generated by an individual by implementing their skills is considered an income from a profession. And the income a freelancer earns is the sum of all receipts that she gets from your clients. So is therefore, taxable income, beyond a point.

For freelancers, incomes up to Rs 2.5 lakh is not taxed. Income between the values 2.5 lakh to 5 lakh are taxed at 10%. 5 to 10 lakhs at 20%, and above 10 lakh at 30 per cent. A freelancer can use the form ITR 4 while filing the tax returns.

You can use Form 26 AS that is linked to your PAN number, and helps you know all the TDS that has been deducted. As a freelancer, you may also be required to pay Advance Tax. Advance Taxation is the payment of taxes during frequent intervals, in a given year, instead of paying the tax once, during a given year.

According to Section 80 of the Income Tax Act, a freelancer can cut down her tax outgo by more than Rs 1.5 lakh. That is, if she invests a specific amount in tax-saving instruments.

Freelance Contract

One of the top struggles in a freelancers life is getting paid. Disputes arise when there is a mismatch of expectations hence drawing out a clear and comprehensive contract is necessary.

The scope of the work and payment terms need to be mutually decided, finalized and written in the contract in a clear manner so that there is

As a freelancer, here are a few things to consider including in your contract.

  • Compensation: The agreed amount that needs to be paid after completion of work

  • Timeline: A deadline set mutually by both parties

  • Scope of work: Defines the freelancer’s nature of work during the tenure of the agreement