Taxes for Freelancers

Freelancers in India who sell software, design, consulting or other services to foreign clients enjoy a unique position: their earnings are considered export of services and are treated as zero‑rated supplies under the Goods and Services Tax (GST) law. However, this privilege comes with a set of tax and regulatory obligations. This article summarises the major compliances a freelancer must undertake in 2025 when operating from India and dealing with overseas clients.

GST obligations

When is GST registration required?

For service providers, GST registration becomes mandatory when aggregate annual turnover exceeds ₹20 lakh (₹10 lakh in special‑category states). Even if turnover is below this threshold, exporters must register because exports are treated as inter‑state supplies under section 24 of the CGST Act. Export of services is defined in the IGST Act as a supply where:

1.The supplier is located in India;

2.The recipient is located outside India;

3.The place of supply is outside India;

4.Payment is received in convertible foreign currency or a special Indian‑rupee Vostro account; and

5.The supplier and recipient are not merely establishments of the same person[3].

Freelancers offering services to foreign clients therefore qualify as exporters and must obtain a GST registration even if their turnover is below ₹20 lakh.

Zero‑rated supplies: refund options

Exports of services are zero‑rated. Under section 16 of the IGST Act, exporters can choose between two routes:

·Pay IGST and claim a refund – Invoice is issued with Integrated GST (usually 18 %) and the exporter later files for a refund of tax paid under section 54 of the CGST Act.

·Supply under bond/Letter of Undertaking (LUT) without payment of IGST – Services are exported without charging tax. The exporter must furnish an LUT (Form GST RFD‑11) in advance and can then claim a refund of unutilised input tax credit (ITC). Most freelancers prefer this route because no GST needs to be charged, easing cash‑flow.

Eligibility & validity of LUT – Registered persons exporting goods or services or supplying to SEZ units can file an LUT. Persons prosecuted for tax evasion exceeding ₹2.5 crore in the previous five years are ineligible. The LUT remains valid for one financial year and must be renewed at the beginning of every year (1 April).

Conditions under Rule 96A – The LUT should be submitted before export; services must be realised in convertible foreign currency or INR Vostro account within one year from the date of invoice. Failure to realise export proceeds in time requires payment of IGST plus 18 % interest within 15 days, after which the LUT is withdrawn. Once the tax and interest are paid, the LUT facility can be restored.

Post‑LUT compliance – Include the LUT number on export invoices, realise export proceeds within one year, file monthly/quarterly GSTR‑1 (outward supplies) and GSTR‑3B (summary return), and reconcile input tax credits. Non‑realisation of export proceeds in time or delayed filing may lead to IGST liability and interest.

GST return filing and refund claims

Exporters using LUT should claim refund of unutilised ITC by filing Form GST RFD‑01, while those who paid IGST claim refund under Form RFD‑01A. Refund claims must be accompanied by the foreign inward remittance certificate (FIRC) and other supporting documents (discussed later). Freelancers should keep digital copies of invoices and reconciliations to substantiate refunds.

Importer‑Exporter Code (IEC)

The Importer‑Exporter Code (IEC) is a 10‑digit identification number issued by the Directorate General of Foreign Trade (DGFT) for companies dealing in international trade. IEC is mandatory for importers/exporters of goods, but it is generally not required for service exporters unless they wish to avail benefits under the Foreign Trade Policy or are dealing in restricted services or technologies. Customs and banks demand an IEC for goods shipments, whereas service exporters can operate without one unless they are seeking government incentives. Freelancers exporting services electronically therefore normally do not need an IEC.

Income tax compliance

Classification and ITR form

Income from freelancing is taxed under “Profits and Gains of Business or Profession” (section 28). Freelancers can choose between normal taxation and the presumptive taxation scheme under section 44ADA.

Section 44ADA – presumptive taxation

Section 44ADA allows specified professionals – including IT consultants, designers and other freelancers – to declare 50 % of their gross receipts as taxable income. This reduces compliance because no books of account or audit are required if turnover does not exceed ₹75 lakh. Professionals opting for 44ADA must pay tax on 50 % of receipts, but they may still claim deductions under Chapter VI‑A (like section 80C). They file ITR‑4 and need not maintain detailed accounts as long as the declared income is at least 50 % of receipts.

If receipts exceed the limit or if the freelancer wants to claim actual expenses resulting in income lower than 50 %, they must follow normal provisions, maintain books and may require an audit under section 44AB.

Certain set of freelancer may also be eligible to opt for 44AD which requires them to declare 8% (or 6% in certain cases) of their gross receipts as taxable income. However, this needs to be investigated on a case-to-case basis.

Advance tax

Freelancers must pay advance tax when their estimated tax liability exceeds ₹10,000. In general, advance tax is paid in four instalments – 15 June (15 %), 15 September (45 %), 15 December (75 %) and 15 March (100 %). However, persons using section 44ADA may pay the entire advance tax by 15 March without facing interest. Missing these instalments attracts interest under sections 234B and 234C.

Foreign Inward Remittance Certificate (FIRC) and e‑BRC

A Foreign Inward Remittance Certificate is documentary proof issued by an authorised dealer (AD Category 1) bank for money received from abroad. It records the beneficiary’s details, remitter’s name and address, currency, amount, and purpose of remittance. FIRCs have been issued electronically since 2016; banks now send a foreign inward remittance message (IRM) through the Export Data Processing & Monitoring System (EDPMS) to generate an e‑FIRC. An FIRC (or FIRA/FIRS) is crucial evidence that the exporter has received foreign currency and is required when claiming GST refunds and incentives.

An Electronic Bank Realisation Certificate (e‑BRC) is a digital certificate issued by banks confirming that payment for an export invoice has been realised. It is primarily mandatory for exporters of goods and for software services covered under the Softex regime; most freelancers who provide routine consultancy or digital services do not require an e‑BRC. Nevertheless, banks may issue e‑BRCs automatically for foreign remittance receipts, and these should be retained for record‑keeping.

Softex forms and RBI compliance for software exports

While most freelancers who offer consultancy or design services receive payments under the RBI purpose code P0802 (software implementation and consultancy), those who export software or SaaS products under purpose code P0801 must comply with Softex regulations. The Softex form is a regulatory document issued by the Reserve Bank of India to monitor export of software and IT services; it contains details of the exporter, description of software/services, client information, contract/invoice values and must be certified by a Software Technology Parks of India (STPI) or Special Economic Zone (SEZ) authority before submission to the authorised dealer bank. Filing a Softex ensures that foreign currency is legitimately earned and repatriated to India within nine months.

When is Softex required?

·Required if you export software, IT or digital products and the client pays you in foreign currency under purpose code P0801; this includes SaaS and digital software platforms.

·Applicable to any entity – individual freelancers, sole proprietorships, partnership firms or companies. Non‑STPI units must first register with their local STPI to file Softex.

·Not required for services unrelated to software/ITeS, domestic sales, personal remittances or consultancy services classified under purpose code P0802 (e.g., freelance consultancy, small custom scripts).

Failure to file Softex when required may lead to non‑receipt of export proceeds, difficulty in obtaining e‑BRCs and denial of GST refunds. Freelancers engaged in software exports should maintain invoice details, sign the Softex form within 30 days of invoice, and submit it to the STPI/SEZ and their bank.

Trade licence and local registrations

A trade licence is issued by municipal authorities to regulate commercial activities within their jurisdiction. Many municipal corporations require a trade licence for shops or establishments that are open to customers. However, home‑based freelancers who work quietly and do not invite clients to their residence typically do not need a trade licence; the requirement arises only when the business has a physical storefront or customers visit the premises. Freelancers should verify local rules with their municipality; some cities may still require registration under the Shops and Establishments Act even for home offices.

Record keeping and other compliance tips

·Maintain detailed invoices specifying the service description, client address and country, GSTIN (if applicable) and LUT number. Use the correct RBI purpose code on each invoice and bank remittance advice.

·Collect FIRCs/e‑FIRCs and bank statements for each foreign payment. Store these along with contracts and communications as proof of export.

·Check Form 26AS regularly to ensure TDS deducted by clients matches your records. Communicate with clients to correct any discrepancies before year‑end.

·File returns on time – GSTR‑1 (monthly/quarterly), GSTR‑3B (monthly), ITR‑4 or ITR‑3 (annually) – and renew LUT each financial year.

·Consider professional advice for complex situations such as multi‑currency contracts, service agreements with permanent establishments abroad or the creation of a firm/company structure. The regulatory landscape (GST law, income‑tax provisions, foreign exchange rules) evolves frequently, and professional guidance can prevent costly mistakes.

Conclusion

Freelancing for overseas clients is an exciting avenue for Indian professionals. Yet, it brings responsibilities: obtain GST registration even when turnover is low, decide whether to charge IGST or furnish an LUT, claim refunds promptly, understand when an IEC or Softex is necessary, and choose between the presumptive and normal income‑tax regimes. By adhering to the compliances outlined above and maintaining robust records of invoices, remittances and tax filings, freelancers can enjoy the benefits of global work without running afoul of Indian tax authorities.

If you are a freelancer exporting services outside India and curious to learn more about this, please reach out.