How to turn part-time freelancing into full-time legal business?
“Ashima, what happened? You look upset”, Rahul asked Ashima, his best friend, and a freelancer.
“I have lost two probable clients in last 3 days”, Ashima informed.
“Those clients wanted to work with a freelancer having GST registration”, Ashima replied.
“Why didn’t you register under GST? Getting a GST number is easy as pie”, Rahul clarified.
“Registering as a business owner is cumbersome and expensive. Also, the regulations might eat most of my income”.
Like Ashima, most freelancers don’t register themselves as business owners due to fear of unnecessary compliances or too much tax. WizCounsel has some tips for you to save taxes. Read our blog – Tax saving for freelancers to know more.
However, as the gig economy is thriving, companies are looking for freelancers who are legally set up as business owners. Legal status relieves the company of any credibility concerns.
Setting up a business for freelancers is not as scary as Ashima thought – instead, it is a quick, hassle-free process involving a few steps –
Choose a Business Structure
There are several business types– Partnership, Limited Liability Firm, Private Company or Trust.
However, the most comfortable choice is sole proprietorship concern – simple, inexpensive formation and minimal compliances provide it with an edge over other entity structures.
In a sole proprietorship, the profits, expenses, and liabilities of the business belong exclusively to the owner.
You have to file a single income tax return for your personal income (such as saving bank interest) as well as business profits.
Although there’s a significant disadvantage of setting up a sole proprietorship – you are personally liable for the company’s debts and liabilities. God forbidden, if the business income can’t pay off any debt or credit on time, your personal money can be used to make the payments.
Nevertheless, a sole proprietorship is the most preferred business structure for the freelancers.
Get the PAN and GST number
After choosing a suitable business structure, you have to apply for PAN number by filling an online form, attaching the necessary documents and paying the required fees.
In case of a sole proprietorship, Income Tax Dept allots the PAN number in the business owner’s name.
After receiving PAN number and physical PAN card, you can register under GST. Although the “Business Name” will be your personal name, you can mention your brand name as the “Trade Name”.
While working with the client for the first time, don’t forget to send your PAN number because he will deduct TDS (Tax Deducted at Source) at 10% at the time of making payment. If the PAN number is not furnished, the TDS rate will be 20%. Also, you have to charge GST in the invoice issued to every client.
Open a current account
Once you get the GST number and registration certificate, you can visit a bank and open a current account (business account). You can then accept the client cheques in company’s name too.
Setting up a business can shoot up your freelancing career to the next level. For that to happen, you should plan the things smartly. If need be, don’t hesitate in consulting an expert on practical implications. Do you know 5 to-dos for every startup? To read about it, click here.
WizCounsel Team is ever ready to resolve any query or concern related to business formation, tax aspects or legal compliance. Remember, we’re just a call or an e-mail away.
WizCounsel is an online marketplace that helps you hire verified & independent Lawyers, CAs, & Business Experts. Hire for one time task, ongoing work or just for a consultation. Get work done using file sharing, communication tools, delivery tracking and making payments online.