Yes, the Reverse Charge Mechanism (RCM) is applicable to freelancer services in specific scenarios, particularly when an Indian freelancer imports services (like platform fees from Upwork, Fiverr, or software subscriptions) or receives services from unregistered suppliers. In these cases, the freelancer (recipient) must pay GST directly to the government.
Exclusions (RCM does NOT apply to these government services):
Indian freelancers must pay GST when their turnover exceeds INR 20 lakhs/INR 10 lakhs in special category states) in a financial year. If a freelancer who doesn't exceed the specified turnover voluntarily registers under GST, they are also obligated to pay and collect GST and file returns on time.
RCM mechanism is not applicable to all professional services, but only to specific situations notified by the government: Legal Services: When a lawyer or law firm provides services to a GST-registered business, the business, and not the lawyer, is required to pay GST under RCM.
If your freelance business earns 75,000 AUD or more in gross income, you're required to register for GST within 21 days of exceeding the threshold. Once you're registered, you'll need to: Add 10% GST to your invoices. Lodge a BAS (usually quarterly)
Even if you make less than $30,000 in income in subsequent years after charging GST/HST, you must continue to charge GST/HST on your invoices to clients and remit payments to the CRA.
Essential goods and services like unprocessed agricultural food, healthcare services, educational services and public transportation services are some of the GST-exempted goods and services.
RCM is applicable on notified goods/services, purchases from certain unregistered suppliers, and e‑commerce specified supplies.
The reverse charge is a method of self-accounting for VAT. Instead of the overseas supplier charging you VAT, you calculate and report the VAT as if you had received the service from a UK supplier. This applies to most services, including consultancy, software licences, legal services, and marketing support.
TDS for Freelancers
Every professional service you provide is subject to a 10% TDS (Tax Deducted at Source) under Section 194J of the Income Tax Act. You can also claim a refund of this TDS, just like salaried individuals do.
If your GST turnover is below the $75,000 threshold, you may choose to register. But if you do, regardless of your turnover, you must: include GST in the price of most goods and services you sell. claim GST credits for most business purchases you make.
GST Professional Services in India under 18% Tax Rate
The rate is applicable to services offered by professionals like consultants, lawyers, architects, and engineers, among other specialised service providers. Legal advice, document preparation, court representation, and arbitration services.
RCM disadvantages
RCM also has its drawbacks. The initial costs of implementing RCM are high. Performing RCM analysis requires maintenence teams to invest significant time, finances, and resources to get started. ROI may be slower than executives prefer.
Reverse Charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply.
The reverse charge allows the purchase to be handled as though the buyer is also their own supplier. Although this isn't the actual case, for the purposes of tax, this allows the seller to more easily process the transaction.
Common DRC exemptions are:
The reverse charge mechanism in GST means that the responsibility to pay tax shifts from the supplier of goods or services to the recipient. In other words, the buyer, instead of the seller, is liable to pay GST on certain notified categories of supply.
Rule 47A, effective 1 Nov 2024, introduced new self-invoicing and time-of-supply provisions for RCM. Recipients must now generate self-invoices within 30 days of receiving goods or services from unregistered suppliers to remain eligible for ITC.
No GST is charged on the UPI payment. The final bill amount may include GST, but that is based on the service you are paying for, not on the UPI transaction. UPI only acts as the payment method and adds no extra cost.
These include bank transfers between accounts, stamp duty, depreciation and salary/wages. These are purchases/sales that have a 0% GST rate. Examples include, purchasing items from overseas (exports); purchasing items from within Australia that are not subject to GST, eg. fresh food, some education.
Businesses with a turnover above Rs 40 lakhs involved in the sale of goods or Rs 20 lakhs in the case of services and entities satisfying specific conditions stipulated under Section 24 of the CGST Act, 2017 are compulsorily required to register under GST.
Zero-rated supplies
Zero rated supplies in GST are those exports or supplies to SEZ that do not attract any GST. They are beneficial for the economy as they boost exports and generate foreign exchange. They are also advantageous for the exporters as they can claim refund of the input tax credit they paid.