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 managed to capture the mind-space and eye-balls of the consumers in a jiffy, and with an unprecedented growth trajectory expected to continue, is predicted to be the next BIG Industry of India. The new Goods and Services Tax or simply GST has certain features for the e-commerce industry that bring more regulation to this sector which can be seen as 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. There are many other hindrances that the present tax structure imposes which can now be solved with GST.
Definition of E-Commerce as per GST
As per GST Law, ‘electronic commerce’ shall mean the supply or receipt of goods and / or services, or transmitting of funds or data, over an electronic network, primarily the internet, by using any of the applications that rely on the internet, like but not limited to e-mail, instant messaging, shopping carts, Web services, Universal Description, Discovery and Integration (UDDI), File Transfer Protocol (FTP), and Electronic Data Interchange (EDI), whether or not the payment is conducted online and whether or not the ultimate delivery of the goods and/or services is done by the operator.
Some of the highlights of GST in respect to E-Commerce Business are given below:
We at Starters’ CFO can assist you in getting registered for GST along with providing services in regard to maintaining your business in the future.
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 the businesses carrying out e-commerce activity are required to get registered under GST irrespective of their turnover. Additional efforts shall be required to reconcile the returns of e-commerce operators and vendors and justify before authorities, as it may become a regular phenomenon due to timing differences, etc.
Get Registration for each individual state
E- Commerce players and aggregators need to be registered 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.
Trans-shipment of goods is another such phenomenon that needed to be addressed. 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. Ideally, trans-shipment of goods should be kept outside the purview of GST as no sale is involved, in order to reduce unnecessary tax and compliance burden.
Removal of Successive Rates
As the name suggests “Goods and Services Tax” it is just one tax liability for both service and good. Hence unlike the indirect tax system, GST will not be imposed twice (once on goods 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. At present, the traders are denied credit of service tax paid on input services such as logistics, warehousing, commission of marketplace. Service providers are not allowed to claim credit of VAT paid on goods that are used for providing 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. This cost benefit, hopefully, be passed on to the customers.
TCS to be collected by Marketplace Operator
The market place operator is responsible for collecting TCS. Under the new tax regime, marketplace operators are mandatorily required to deduct a percentage amount as the GST liability of seller and deposit it with government. This mechanism is being termed as “Tax Collection at Source (TCS)” under the GST law. Eventually the marketplace seller will have to file monthly return under GST to claim the credit of TCS collected by the marketplace operator. This will also impact the liquidity and cash flow of these sellers.
No Benefit under Composition Scheme
Under GST, a composition scheme has been introduced which will make compliance with tax laws hassle free for eligible businesses opting for the scheme. This is particularly for small businesses operating in the country. Rate of tax as prescribed will be less than regular GST but not less than 1% of the turnover during the Financial Year. Tax rates under the scheme are expected to be between 1% and 3%. This scheme is primarily aimed to reduce the burden of compliance for small and medium businesses. Also businesses registered for composition scheme need to file returns quarterly (not monthly).
But not to be forgotten, E-Commerce Businesses have not been included under this scheme.
Hence there are a number of provisions included under GST that guide the e-commerce businesses from unregulated to a regulated way. 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.