GST
Businesses must register for GST and pay taxes on their taxable items and services if their annual revenue exceeds Rs. 40 lakhs for goods and Rs. 20 lakhs for services.
GST Registration | Online GST Registration Process
Input Tax Credit under GST - Conditions To Claim
Input Tax Credit under GST - Check Conditions To Claim
BENEFITS of Amazon Business Account - YouTube
GST vs Income Tax
Income Tax and GST are 2 completely different Acts and tax different things.
Mr. India earns INR 1 crore by selling services to Indian parties. This is professional income for Mr. India. GST on these services applies at 18%
GST
Mr. India will collect the following amount from his clients:
| Particulars | INR |
|---|---|
| Fees for services | 1,00,00,000 |
| Add: GST @ 18% | 18,00,000 |
| Total Collection | 1,18,00,000 |
This INR 18,00,000 of GST collected will be paid to the Government. Accordingly, GST is an indirect tax - the clients bear the burden of this amount.
Income Tax
Mr. India will be liable to pay income tax on this INR 1 crore at slab rates. This is a tax on your income - a Direct Tax. This goes out of your pocket.
A Comprehensive Guide on Tax for Freelancers
Input Tax Credit under GST - Check Conditions To Claim
Foreign Income
Services provided to a client outside India, with payment received in convertible foreign exchange, qualify as export of services and are zero-rated under GST (IGST Act, Section 2(6)), so no GST is charged to the client. Either issue the invoice under a Letter of Undertaking (LUT) without paying GST, or pay IGST and claim a refund.
The conditions are that the recipient is located outside India, the place of supply is outside India, payment is received in convertible foreign exchange (or INR where RBI permits) within the prescribed time, and the supplier and recipient are not merely establishments of the same entity.
Exports still count towards aggregate turnover for the registration threshold, and the income is still taxable under income tax. Receiving the remittance in INR rather than foreign currency does not by itself make GST payable; what matters is whether the supply meets the export conditions.
If the supply fails the export conditions (for example, the recipient is located in India), normal GST at 18% applies even if the money arrives from abroad. Confirm borderline cases with a Chartered Accountant.
Which FY Counts Towards the Registration Threshold
The Rs. 20 lakh (services) / Rs. 40 lakh (goods) limit is tested on aggregate turnover in a financial year (Apr-Mar) (Section 22 CGST). Turnover is counted by time of supply, not by when the money is received (cash-basis accounting is irrelevant for GST).
For services (Section 13(2) CGST):
- Invoice issued within 30 days of providing the service: time of supply is the earlier of the invoice date and the payment receipt date.
- Invoice not issued within 30 days: time of supply is the earlier of the date the service was provided and the payment receipt date.
| Scenario (work done in March) | Counts in |
|---|---|
| Invoice raised 31 March, paid 12 May | FY ending March (invoice came first) |
| Invoice raised in March, paid in April | FY ending March |
| Invoice raised in April, paid in April | Next FY |
| Advance received in March, invoice in April | FY ending March (receipt came first) |
Consequences when the invoice date falls in the earlier FY but payment lands in the next:
- The invoice amount is turnover of the earlier FY only; the later receipt is not counted again in the new FY.
- If already registered, output GST is due in the invoice month's return (GSTR-1 and GSTR-3B), even though the cash has not been received yet.
- If unregistered and this invoice crossed the limit, liability starts from the date of crossing and registration is due within 30 days.
- GST already paid on an unpaid invoice can be recovered only via a credit note under Section 34, subject to its conditions and time limits.
- Income tax is separate: on the cash method the income falls in the FY of receipt, on the mercantile method in the FY of the invoice.
Other points: the limit is Rs. 10 lakh for services in special-category states; aggregate turnover is computed PAN-wide and includes exempt supplies and exports; inter-state supply of services generally needs registration regardless of turnover. General information only - confirm edge cases (milestone billing, reverse charge) with a Chartered Accountant.
How GST Works for a Service Provider
Flow: you invoice the client for fee plus GST, the client pays you the full amount, you deposit the collected GST with the government, and the client (if GST-registered and using the service for taxable business output) claims that GST as input tax credit (ITC).
| Item | Amount (Rs.) |
|---|---|
| Fee | 1,00,000 |
| GST @ 18% | 18,000 |
| Client pays you | 1,18,000 |
| You remit to government | 18,000 (minus your own ITC on business expenses) |
| Your income | 1,00,000 |
- GST collected is not your income; it is held on behalf of the government. If the client never pays, you still owe the GST on the invoice.
- GST you paid on business expenses (laptop, software, rent, with a GST invoice) can be set off against GST you collect, so you remit only the difference.
- Below the threshold and unregistered, you cannot charge GST and the client cannot claim ITC on your invoice. An unregistered client still pays GST on your invoice but cannot claim it back.
- Exports of services are zero-rated: issue the invoice under a Letter of Undertaking (LUT) without paying GST, or pay IGST and claim a refund. The foreign currency must be realised in a convertible form within the prescribed time.
- Reverse charge: for some specified services (for example, from a GTA or an advocate) the recipient pays the GST directly.
Who Actually Bears the GST
The final consumer. GST is charged only on the value added at each stage, and ITC removes tax-on-tax. Example: the client uses your Rs. 1,00,000 service to build a product it sells for Rs. 2,00,000 + 18% GST.
| Step | Output GST | ITC claimed | Net paid to government |
|---|---|---|---|
| You → Company (Rs. 1,00,000) | 18,000 | 0 | 18,000 |
| Company → Consumer (Rs. 2,00,000) | 36,000 | 18,000 | 18,000 |
| Total government receives | 36,000 |
The government collects 36,000, which is exactly 18% of the final price, and the consumer paid it. You and the company are pass-throughs.
A business client is the effective consumer (bears the GST as a real cost) only when it cannot claim ITC: it makes only exempt supplies, the credit is blocked (personal use, certain employee benefits), or it is unregistered. A registered company buying consulting for taxable business output is an intermediate in the chain, not the final consumer.
Others who can bear cost: a seller of exempt goods (input GST becomes a cost), and you, if you remit GST on an invoice the client never pays until you recover it via a credit note.
How to Deposit GST and File Returns
- Register at gst.gov.in (free; needs PAN, Aadhaar, mobile, email, address proof, bank account; approval in about 3-7 working days).
- Issue GST invoices with GST shown separately: 9% CGST + 9% SGST for a client in your state, 18% IGST for a client in another state.
- Report sales in GSTR-1 (due the 11th of the next month).
- Pay and file GSTR-3B by the 20th of the next month: output GST minus ITC.
- Pay via a challan on the GST portal (net banking, UPI or NEFT). The money lands in the electronic cash ledger and GSTR-3B debits it.
QRMP scheme (turnover up to Rs. 5 Cr): file returns quarterly and pay tax monthly by the 25th through a challan (PMT-06). Annual return GSTR-9 is optional below Rs. 2 Cr turnover.
Cost of Registration and Compliance
Approximate market rates; they vary by city and CA.
| Item | Typical cost |
|---|---|
| Registration on the portal | Free (a CA may charge about Rs. 1,000-3,000) |
| Return filing by a CA | About Rs. 500-2,000 per month, or Rs. 10,000-25,000 per year |
| Invoicing/accounting software | Free to about Rs. 2,000 per year |
| Digital signature (DSC) | Not needed for a proprietor (Aadhaar OTP); required for companies and LLPs |
| Late fee | Rs. 50 per day (Rs. 20 per day for nil returns), plus 18% per year interest on late tax |
The GST collected is not your cost; the compliance cost (CA, software, time) is, but it is deductible as a business expense for income tax.
Composition Scheme
A service provider with turnover up to Rs. 50 L can opt to pay a flat 6% of turnover with simpler returns, but cannot charge GST to clients or claim ITC. Clients then get no ITC, so it generally does not suit B2B or inter-state consulting.
Income Tax on Consulting Income
Fees are taxable professional income; GST is not part of it (if shown separately on the invoice). Income tax and GST are separate, and you owe both.
What is taxed:
- Under regular books: fees minus business expenses (including CA fees and software).
- Under the presumptive scheme (Sec 44ADA): 50% of gross receipts is deemed profit with no expense deductions, if receipts are up to Rs. 50 L (Rs. 75 L if cash receipts are 5% or less). It applies to specified professions such as technical consultancy, engineering, legal and accountancy, so confirm with a CA that your consulting qualifies.
Rate: net profit is added to other income and taxed at slab rates. New regime (FY 2025-26 slabs, check the latest Budget):
| Income (Rs.) | Rate |
|---|---|
| Up to 4 L | Nil |
| 4-8 L | 5% |
| 8-12 L | 10% |
| 12-16 L | 15% |
| 16-20 L | 20% |
| 20-24 L | 25% |
| Above 24 L | 30% |
The Section 87A rebate makes tax nil up to Rs. 12 L taxable income. The salary standard deduction does not apply to professional income.
TDS (deducted by the client):
- Companies deduct 10% under Sec 194J on professional fees (2% for technical services) once annual payments to you exceed Rs. 50,000.
- It is calculated on the fee excluding GST if GST is shown separately.
- It is a prepayment, not an extra tax: claim it as credit in your ITR, visible in Form 26AS and AIS.
Advance tax: if tax after TDS is Rs. 10,000 or more, pay in instalments (15 Jun, 15 Sep, 15 Dec, 15 Mar). Under 44ADA, a single payment by 15 March is allowed.
Return: ITR-4 for presumptive income under 44ADA, ITR-3 if you keep full books. Due 31 July of the next FY if no audit applies.
Note: section numbers are from the Income Tax Act 1961. The Income-tax Act 2025 applies from 1 April 2026 with renumbered sections; the concepts carry over, but verify current numbering. General information only; confirm with a Chartered Accountant.
Harmonized System of Nomenclature (HSN)
The Harmonized System of Nomenclature (HSN) is a globally accepted system for classifying goods and services. It's used by more than 200 countries for customs tariffs and international trade.
What is the HSN code used for?
- Customs tariffs: HSN codes are used to calculate customs tariffs.
- GST: HSN codes are used to classify goods and services for GST purposes.
- Taxation: HSN codes are used to determine tax rates.
- Trade documentation: HSN codes are used in trade documentation.
- Inventory management: HSN codes are used in inventory management.
How does the HSN code work?
- The HSN code is a six-digit code.
- The first two digits indicate the chapter.
- The second two digits indicate the heading within the chapter.
- The last two digits indicate the subheading within the heading.
Who developed the HSN code?
- The World Customs Organization (WCO) developed the HSN code.
Why is the HSN code important?
- The HSN code simplifies international trade.
- The HSN code helps businesses comply with taxation systems.
- The HSN code helps businesses maintain smooth operations.