SOHO economy wakes up to new reality
Vikas Kumar, a freelance writer and content producer, who operates solo out of his home in Delhi, is a worried man. In a LinkedIn post, Kumar’s anguish was clearly visible: “… I’m looking to understand the effect of GST on freelancers and how they need to operate in India under the new tax regime. It appears that freelance income doesn't get clear mention in new tax rules released each year …”
There are good reasons why small office-home office (Soho) professionals and businesses need to get their act in place when it comes to compliance under the new indirect tax regime. It is mandatory for a professional or a small service provider to get registered under the GST if his or her annual income is ~20 lakh or more. However, this threshold becomes irrelevant if one is involved in interstate sales of services or goods. Tax experts say many professionals who were outside the purview of the service tax are increasingly becoming aware of the registration and compliance requirements.
Any business receiving services from professionals who remain unregistered would be required to pay tax under the reverse charge mechanism (RCM). “Due to increased compliance at their level such companies are discouraging the practice of receiving services from unregistered professionals,” says Rajeev Dimri, leader, indirect tax, BMR & Associates. This may in due course force many such professionals to get registered, say experts.
Small service providers in the National Capital Region are significantly impacted with services often crossing state borders. Many such service providers will have to register and bear an increased cost of compliance. “Smaller businesses have to grapple with a tighter cash flow situation on account of up-front payment of taxes on an accrual basis in contrast to the cash basis, which was allowed in the sales tax regime,” says Pallav Pradyumn Narang, a Delhibased chartered accountant.
Freelance professionals like Kumar too are likely to be unhappy. As Kumar puts it succinctly in his post, “…would rather be busy pursuing our core work and passion, than be dragged into filing a return every 10 days, through the year”.