If freelancing wasn’t hard enough on its own, the goods and services tax (GST) rollout, which goes live on July 1, is set to add additional hurdles. All part-time app developers and bloggers making any income through their side hustle will have to pay GST at 18% from July 1, 2017, and no exemption limits apply, says an expert who has done deep research on the GST Act.
“If you are a service provider, ie blogger, and generating income from outside India (export of services), then GST registration is mandatory and exemption limit shall not apply,” wrote Paras Mehra, cofounder of Hubco, an accounting solution provider for small businesses and SMEs. His post, published earlier this month, has sent waves of panic among the blogger and app developer community.
“A lot of bloggers are probably still unaware that they are now covered under GST” — Harpreet Singh, Founder, Deals for Geeks
There’s a lot of confusion among bloggers on how to file GST. There’s no way for a blogger or app developer who earns money via Adsense to figure out which company placed ads on the website, and how much they should pay, as Google acts as the intermediary.
GST may end up complicating things for bloggers, says Harpreet Singh, who runs a deal curation website, Deals For Geeks, and writes for a couple of other websites. “A lot of bloggers are probably still unaware that they are now covered under GST,” he said. “On one hand, there’s finally clarity on taxes owed by bloggers. While on another, since there’s no exemption limit that applies; small bloggers who don’t make too much money will have to file GST, and eventually pay taxes.”
Who pays the blogger?
Archit Gupta, founder and CEO of Bengaluru-based tax preparation portal ClearTax, gave us a detailed interpretation of the tax situation, which hasn’t been specifically addressed by the GST law.
“If you’re a supplier, you charge GST from the person who is buying from you, and you go deposit their GST with the government,” said Gupta. “In this transaction, you need to understand first who the suppliers and receivers are. As a blogger, you are a supplier, because you are supplying internet real estate to somebody. So you’re a supplier in that space, and the company that puts the ad is the buyer. Google is sort of in-between,” he explained.
“One way could be that we decide to break this transaction we ask Google to give us a statement with details of how many companies have placed ads on the website, and how much they should be charged,” he said. The blogger raises an invoice, either to Google or to those companies, and gets the money and collects the GST and deposits it with the government. However, this doesn’t seem feasible as Google runs a global inventory of ads; the ad can very well be from non-Indian companies which don’t follow any GST norms.
It gets even more complicated. Before a blogger can raise an invoice, he needs to figure out what taxes should be charged. If it is an invoice for someone who is within the state, then he has to charge central GST (CGST) and state GST (SGST). If he is raising it to someone who is outside the state, then he has to charge integrated GST (IGST). “It will become a major exercise for the blogger to go and identify who is this advertiser, where is he based, what is his location, whether that person is registered or not,” Gupta said.
“The law specifically states that the exemption limit applies only to those who are earning up to Rs 20 lakh within the state (Karnataka, for example). Otherwise, there is no exemption limit,” Paras Mehra, cofounder of Hubco
There is one way that the government could possibly address this situation. It can put the onus of paying the taxes on the blogger, or on Google, explained Gupta. “We don’t know whether they are going to implement it for bloggers, at least for now. Our take is that you are able to identify who your buyer is, who you should invoice, where that person is based, what is his GSTIN number, whether he is registered or unregistered. Then please go ahead, raise invoices and be done with it,” he said.
Cleartax launched its SME Billbook software earlier this month, which solo-preneurs and freelancers can use for GST compliant invoicing, post registration. “The SME Billbook is free of cost, and it can be used by bloggers, by freelancers, to start invoicing according to GST norms,” Gupta said.
However, there’s no escaping GST
Mehra stuck with his interpretation during a phone conversation with FactorDaily, and sees no reason for bloggers or app developers to be exempt from GST. “The law specifically states that the exemption limit applies only to those who are earning up to Rs 20 lakh within the state (Karnataka, for example). Otherwise, there is no exemption limit,” he said.
“Whether you invoice or not, Adsense income is paid directly to your bank account, and this is (credited) from outside India. Sometimes, it is from India, but from a different state,” he said. In that sense, it is going to be treated as an interstate service, for which GST registration is mandatory, and no exemption limit applies to them, he added. From multiple accounts, we’ve gathered that Adsense payouts are made from the US, and Singapore.
Cleartax too agrees that anyone doing freelance work, or generating income via Adsense, or any other ad-supported income, is engaged in an interstate transaction, which makes GST registration mandatory, irrespective of the income.
While it would cause hardship to anyone making a small side income via an app or a blog, Mehra sees no reason to exempt them from filing GST. “It’s a genuine hardship. But I have to state what the law says. It must be the intention of the government to cover them as well,” he says, comparing the plight of a small-time blogger to a shop owner. “Even a small shop owner in say Delhi, who has listed his goods on Amazon, has to mandatorily register under GST, even if he’s earning Rs 5 lakh rupees per year. If a blogger is earning around Rs 4-5 lakh per year, he’s no different from the shop owner,” he said.
“Do I have a choice? Whatever happens, I will have to pay tax, There’s no escaping that” — a developer who did not want to be named
“Do I have a choice?” asks a developer who has earned over $100,000 cumulatively via Adsense, when asked to comment on GST. He did not want to be named, as he doesn’t want to disclose his side-income to his employers. “Whatever happens, I will have to pay tax, There’s no escaping that,” he said, adding that he plans to have a chat with his chartered accountant on how to deal with the situation.
FactorDaily sent a mail to revenue secretary Hasmukh Adhia on Friday asking for more clarity on whether bloggers and app developers will have to pay GST on Adsense or other sources of income. We haven’t received a response yet; we will update the story when we do.
Some breathing space
While July 1 is the date of the rollout, the GST council has postponed the date for filing the first return for the first two months. Under GST, you’re supposed to file the first tax returns on the 10th of the next month.
“As they launched it on July 1, the first returns will take place on August 10. What the government has done is allowed people more time, so they can file their return on September 10,” Gupta said.
Even in the grace period, you have to file returns at least once, says Mehra. “They (the government) has said you don’t have to file three returns per month for two months, but instead you have to file one return.”
“As they launched it on July 1, the first returns will take place on August 10. What the government has done is allowed people more time, so they can file their return on September 10” — Archit Gupta, founder and CEO, ClearTax
“I think the effect of GST will be far bigger than demonetisation, which was a two-month crackdown. GST is going to continue for years,” Mehra said.
Outside of the freelancer crowd, GST compliance is a potential windfall for India’s tech startup and IT sector. “You’re talking about a huge tax overhaul; this is something that will take time and I am not worried about it,” says Arun Narayanan, chief growth officer at Mobisy Technologies, a workflow automation solution provider for businesses. “As a company, we’re bullish about what GST can do for the economy as a whole, and for Indian trade,” he said.
Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.