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Re: Service tax in India

Ace Contributor
Arnab R Member Since: Mar 30, 2016

Priyanka from the link you have shared:

 

Is Service Tax Applicable on Freelance Income From Outsourced Service?

After reading our service tax guide, you must be confused whether service tax is applicable on freelance income generated from outsource service. Well, again there’s a slight relief for the freelancers. Given the fact that most of the freelancers in the internet industry outsource their services from India to several different countries, they are exempted from Service Tax. As per the Service Tax laws, the Government of India has exempted any Service Tax from all services that are exported out of India.

However, there are certain laws and eligibility criteria to determine whether the service provided falls under “Export of Service” category or not. It is advisable to consult a Chartered Account and he/she may help you further understanding the whole scenario.

Active Member
Anant L Member Since: May 6, 2015

As per law under erstwhile Service Tax and now under Goods & Service Tax (GST) export of services was exempt and now Zero Rated Sales.

 

All contracts via UpWork to any contractor outside India will be eligible for the Exemption and Now Zero rated sale, since the -

1. Service Provider is from Taxable Territory (India)

2. Service Recipient is from Non-Taxable Territory (Outside India)

3. There isn't any relationship between 1 & 2. or not been controlled by 'Distinct Person'

4. Consideration received is in Convertible Foreign Exchange.

 

To clarify - All LBT (local bank transfers directly in INR) is as well considered as Convertible Foreign Currency, even though it's not spefically mentioned under the law, but as per earlier Tribunal, CESTAT and Court Decrees/Orders, if the first three conditions of the export of services is sufficed, and the consideration is paid in Local Currency or INR to the service provider by the third party dealer of the Service Recepient, it will be deemed to be Convertible Foreign Currency.

 

The defination of Convertible Foreign Currency is laid out under the Notification No. FEMA 9/2000-RB and FEMA 14/2000-RB dated May 3, 2000 issued by RBI under Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 (“FEMA Notifications”)

 

 

A decided case law - Sun-Area Real Estate Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai-I [2015-TIOL-956-CESTAT-MUM]

 

So, under the GST law, the FEMA defination continues, and LBT remains the cheapest way to transfer funds.

 

Regards,

Anant 

Community Guru
Juvy Ann P Member Since: Oct 29, 2015

@Anant L wrote:

As per law under erstwhile Service Tax and now under Goods & Service Tax (GST) export of services was exempt and now Zero Rated Sales.

 

The way I understand what I have read in the official website, the assumption that you forwarded may be true only when a certain limit is considered.  Please read the "India GST" thread.

 

All contracts via UpWork to any contractor outside India will be eligible for the Exemption and Now Zero rated sale, since the -

1. Service Provider is from Taxable Territory (India)

2. Service Recipient is from Non-Taxable Territory (Outside India)

3. There isn't any relationship between 1 & 2. or not been controlled by 'Distinct Person'

4. Consideration received is in Convertible Foreign Exchange.

 

To clarify - All LBT (local bank transfers directly in INR) is as well considered as Convertible Foreign Currency, even though it's not spefically mentioned under the law, but as per earlier Tribunal, CESTAT and Court Decrees/Orders, if the first three conditions of the export of services is sufficed, and the consideration is paid in Local Currency or INR to the service provider by the third party dealer of the Service Recepient, it will be deemed to be Convertible Foreign Currency.

 

This sounds plausible because the economic act of exporting goods and services has foreign exchange as its ultimate goal.

 

The defination of Convertible Foreign Currency is laid out under the Notification No. FEMA 9/2000-RB and FEMA 14/2000-RB dated May 3, 2000 issued by RBI under Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 (“FEMA Notifications”)

 

 

A decided case law - Sun-Area Real Estate Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai-I [2015-TIOL-956-CESTAT-MUM]

 

So, under the GST law, the FEMA defination continues, and LBT remains the cheapest way to transfer funds.

 

Regards,

Anant 


 

Highlighted
Active Member
Anant L Member Since: May 6, 2015

Hi Juvy and others, I have sort clarifications from the GST Department regarding GST's impact on freelancers, specifically freelancing via UpWork, so thought sharing with all.

 

If any service provider is providing any service to any non indian person/company via any means will have to compulsorily get registered for GST.

 

The threshold limit of INR 20Lacs, is for  "INTRA-STATE" sales only, where as the freelancers on upwork are doing "INTER-STATE" sales having no threshold. So, a person makeing a sale of $ 1 (One USD) as well has to register for GST under the current provisions of the IGST Act, 2016.

 

So as per this, each and every freelancers earning via upwork has to get themselves registered within 30days of first export transaction via upwork. Which might be an issue for many.

 

Moreover, earlier under the Service Tax, freelancers claimed it under Export Sales and didnt paid any taxes on the same turnover. But under it's compulsory to pay IGST @ 18% on export of services turnover and then claim refund via GST RFD -11  form after 7 days of payment or till 1 year of the same. 90% of the refund amount will be refunded within 2 weeks and rest within 2 years after scrutiny by officers.

 

BUT, to the exporter's saviour, exporters need not pay IGST of 18% on export turnover if --

 

Exporter submit a Letter of Undertaking (if turnover greater than INR 1 Crore) or a "Running Bond" of the approximate taxable amounts along with GST RFD -11 to the appropriate officers. FYI - existing offenders, and some exporters may require to provide Bank Gurantee of max. 15% of the Taxable amount.

 

To simply let's take an example. - 

 

Freelancer's Name = Mukesh
Supplying Service from =  Delhi, India
Contractor's or Service Recipeint's Name = Matt
Service Provided at = Houston, Tx (always place of recepient for all services apart from OIDAR, and few)
Service Provided = Web Development
Contract Amount = $100/-
INR/USD = INR 65 
Contract Completed on = 1st July, 2017



So, as per the above information, mukesh has to get compulsorily registered under GST within 30days from 1st July. Now the tax part -

A. Case 1 (When Refund mechanism is used)
Tax Liability (IGST) => INR 18% x $100 x 65 = INR 1,170/-
Payment Due Date = 20th August
Refund can be claimed from 27th onwards till one year from 20th August


B. Case 2 (Where Running bond is submitted) -- [ this option should be opted by all]
No payment of taxes required. GST registration, Bond and return filing mandatory.

Here bond is to be given on a non judicial stamp paper, as per a simple format provided by the governement.
Running Bond Amount = Total IGST liability for the year 

There are some provisions in regards to Invoice Formats, details of the export of services to be kept, number of returns, etc, there are some specific restrictions on OIDAR services (like web hosting etc,) and other categories. Please contact your nearest GST Consultant for exact clarifications.

I hope it was simple to understand. Send in your queries.

 

Regards,

Anant

Active Member
Ankit T Member Since: Jul 23, 2017

Hi All,

 

I am a Qualified Chartered Accountant from India and would like to highlight some more important things with regards to GST:

 

In case of inter state supply (including export of services/goods) the exemption limit of 20 Lac is not available and one has to get registerd to GST.

 

If you have been providing services to your foreign clients since July 01, 2017 you should get yourself registered in GST atleast by July 30, 2017. This is must.

 

There are 3 returns to be filed every month.

 

You can also claim GST on expenses incurred while providing services to your clients.

 

For your services to be treated as "Export Services", you will have to make sure that the funds arrives in India in foreign currency. So, on Upwork you should choose, wire transfer in USD as "Payment Method".

 

 

 

You will have to arrange for Foreign Inward Advice from your bank, to prove that the money came in India in foreign currency and hence is agains export of services.

 

The money for your export services (coming from Upwork/Paypal/Bank Account of your client) should come in a current account (not a saving account). Otherwise you will not be able to get the Foreign Inward Advice.

 

Not getting registered in GST and ingoring criticalities of the GST law can lead to hugh tax, interest and penalties (even prosecution).

 

 

All the freelancers should take action on time to keep their hard earn money and themselves safe.

 

 

**Edited for Community Guidelines**

 

Best Regards,

 

CA. Ankit Tulsyan

Frequent Visitor
Amol B Member Since: Aug 2, 2016

 Hi @Ankit,

Thanks for your detailed explanation. It was really very helpful. I have registered for GST, but do I have to mandatorily file 3 returns every month, even if my gross income doesn't exceed 20,00,000 INR? And what if I don't file these returns every month?

Thanks again.

Amol

Frequent Visitor
Bhargesh V Member Since: Dec 22, 2017

Thank you Ankit for the detailed reply. 

 

Kind Regards,

Bhargesh Ved.

Ace Contributor
Amardeep S Member Since: Sep 22, 2009

Thanks to all, your insights have clarified most of my queries. I have one more, major concern. I have been working on upwork as an individual. I pay IT as a self employed person. I do not have a business registered, yet. In the GST registration form, it asks for trade name and type of business. 

 

Does this mean I have to register my business first? 

Active Member
Anant L Member Since: May 6, 2015

Hi Amardeep I have a firm of tax consultancy, all Indians on upwork has to compulsorily get themselves registered under GST once you even do a freelance of $1.

 

For GST you dont have to register any separate business. Every individual doing business and profession is carrying on a proprietorship with same PAN card. So under Trade Name / Legal Name muse your own full name, that's the business name aswell.

 

I'll suggest you to consider contacting a Practitioner near you for registration. You may take help from family and friends who have registered.

 

For  freelancers carrying on Export of Services, government has mandated to pay 18% GST on all the billing by 20th of the succeeding month. And claim refunds after 7days of GST Return. Too cumbersome.

 

To bypass that legislation, exporters with Turnover less than 1Cr (INR) have to submit a Running bond in prescribed format with 15% Bank Guarantee along with other docs. this will allow export of services without payment of GST.

 


The running bond proccess is hardship of one time but better than regular timely payments and refunds.

 

Regards,

Anant 

Community Guru
Juvy Ann P Member Since: Oct 29, 2015

@Anant L wrote:

Hi Amardeep I have a firm of tax consultancy, all Indians on upwork has to compulsorily get themselves registered under GST once you even do a freelance of $1.

 

For GST you dont have to register any separate business. Every individual doing business and profession is carrying on a proprietorship with same PAN card. So under Trade Name / Legal Name muse your own full name, that's the business name aswell.

 

I'll suggest you to consider contacting a Practitioner near you for registration. You may take help from family and friends who have registered.

 

For  freelancers carrying on Export of Services, government has mandated to pay 18% GST on all the billing by 20th of the succeeding month. And claim refunds after 7days of GST Return. Too cumbersome.

 

To bypass that legislation, exporters with Turnover less than 1Cr (INR) have to submit a Running bond in prescribed format with 15% Bank Guarantee along with other docs. this will allow export of services without payment of GST.

 


The running bond proccess is hardship of one time but better than regular timely payments and refunds.

 

Regards,

Anant 


What do you mean by "billing"?  The taxable income does not include those which do not arrive at our bank accounts.  FOREX rule accepts the fact that direct to local bank transaction fees, and Upwork service fees are not within the scope of the taxable income.  

 

As for refunds, it is most likely for freelancers who are earning higher than 1000 rupees (and this roughly equivalent to $16.00) to benefit from it. International tourists who do export their services through the platform while staying in India are refunded automatically but the same threshold amount seem to be in place.

 

I gather that for refunds to be processed, a freelancer need to submit the following documents:

 

a) Application in prescribed Form –R. 2

b) Copy of TR-6/ GAR-7/PLA/ copy of return evidencing payment of duty

c) Copy of invoices (in original) -- two copies for services and three copies for goods (software, for instance)

d) Documents evidencing that duty has not been passed on to the buyer

e) Any other document in support of the refund claim

 

It looks like a freelancer has to foresee the need to include taxes in their hourly rate so as not to pass onto the client the burden of paying for taxes.  This, in, fact, is the reason why the net income that is received by the respective bank of a freelancer has to be the taxable income.

 

Furthermore, it looks like the whole affair establishes that refund applications are better treated by the electronic filing of GST.

 

Sources:

 

Central Board of Excise and Customs, Department of Revenue, Ministry of Finance, Government of India.  (2017).  Refund/Rebate Claims of Customs, Central Excise & Service Tax.  Retrieved August 20, 2017, from http://www.cbec.gov.in/.

 

Clear Tax.  (2017).  Refund Process UNder GST.  Retrieved August 20, 2017, from https://cleartax.in/.

 

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