E- Commerce Business in India has been taking little steps to evolve in the highly competitive markets. A few years back, no one could expect such online platforms offering excellent services to a huge lot of people. The e-commerce sector has swiftly captured the attention of consumers and is expected to continue its unprecedented growth trajectory, making it the next BIG Industry in India. The new Goods and Services Tax, or GST, introduces certain features for the e-commerce industry, bringing increased regulation to this sector. This move signifies a step towards a technologically equipped future for the country.
Those who have been in E-Commerce since long, have a clear idea about the less supportive indirect tax laws in respect of online businesses. These tax laws have not been able to recognize and accommodate the evolving business models and hence have become an obstacle in the operation of the newer market place or services model. Also the e-commerce sector faces problems in categorizing their offerings into ‘goods’ or ‘services’ for charging either value added tax (VAT) / Central Sales Tax (CST) or service tax. The present tax structure imposes many other hindrances that GST can now solve.
Definition of E-Commerce as per GST
According to GST Law, ‘electronic commerce’ means conducting the supply or receipt of goods and/or services, or the transmission of funds or data over an electronic network, primarily the internet, through various applications relying on the internet. These applications encompass e-mail, instant messaging, shopping carts, Web services, Universal Description, Discovery and Integration (UDDI), File Transfer Protocol (FTP), and Electronic Data Interchange (EDI). This definition applies regardless of whether the payment occurs online and whether the operator is responsible for the ultimate delivery of goods and/or services.
Some of the highlights of GST in respect to E-Commerce Business are given below:
Starters’ CFO can assist you with GST registration and ongoing business maintenance.
No Threshold Limit for Registration
There is a minimum limit or threshold limit implied on a majority of other businesses for getting registered under GST. These businesses need to register themselves once such limit is breached. However such limit is not applicable in case of E Commerce sellers. All businesses conducting e-commerce activities must register under GST regardless of their turnover. They will need to put in additional efforts to reconcile the returns of e-commerce operators and vendors and provide justifications to the authorities. This may become a regular occurrence due to timing differences, etc.
Get Registration for each individual state
E-commerce players and aggregators need to register in all states of operations and undertake compliance accordingly. Going by the GST provisions, each business that comes under the definition of E-Commerce needs to register on GST India portal for all the states where the person is supplying goods. The reason that came forward to put light on this step was that e-commerce business model is as such that the seller expects order from all the states, so they are liable to obtain registration in all the states.
Another phenomenon that required addressing is the trans-shipment of goods. For e-commerce transactions, trans-shipment of goods among states for aggregation, quality check, returns, etc are a common series of events. There is no clarity on the aspect of taxability of such trans-shipments in law. Trans-shipment of goods should be exempt from GST to reduce tax and compliance burden, as it doesn’t involve a sale.
Removal of Successive Rates
As the name suggests “Goods and Services Tax” it is just one tax liability for both service and good. Unlike the indirect tax system, GST will not impose taxes twice (once on goods and then on services).
Instead there is only one tax that covers the all.
The e-commerce industry can benefit significantly from the removal of barriers in cross utilization of credits. Currently, traders cannot claim credit for service tax paid on input services like logistics, warehousing, and marketplace commissions. Service providers cannot claim credit for VAT paid on goods used to provide output services.
These results in a significant blocked input tax cost for this sector since VAT is applicable on the output side and most input costs are services. The GST model will result in facilitation of continuous credit supply across supply chains along with tax set-offs available across the production value chain, both for goods and services. This will eventually result in the reduction of successive effect of taxes bringing down cost of supplies. Hopefully, we can pass on this cost benefit to the customers.
Marketplace Operator to Collect TCS
The market place operator is responsible for collecting TCS.
Under the new tax regime, marketplace operators must remit a percentage as the seller’s GST liability to the government. This mechanism is being termed as “Tax Collection at Source (TCS)” under the GST law.
The marketplace seller must file a monthly GST return to claim TCS credit. This will also impact the liquidity and cash flow of these sellers.
No Benefit under Composition Scheme
GST has introduced a composition scheme that will make tax law compliance hassle-free for eligible businesses opting for the scheme. This is particularly for small businesses operating in the country. The tax rate will be between 1% and regular GST, depending on your turnover in the fiscal year. Tax rates under the scheme are expected to be between 1% and 3%. This scheme primarily aims to reduce the burden of compliance for small and medium businesses. Also businesses registered for composition scheme need to file returns quarterly (not monthly).
This scheme does not include e-commerce businesses.
GST provisions regulate e-commerce businesses. Hence, in case you are planning to start your own e-commerce business, do consult Starters’ CFO to get in-depth knowledge regarding GST and its impact on E-Commerce sector in India.