India: Goods And Services Tax Imperatives For E-Commerce

Last Updated: 10 October 2017
Article by Shikha Bhardwaj and Sarthak Garg

A cashless economy, and thereby, e-commerce, is considered a beacon of hope for a better tomorrow.

'Digital India'-driven start-ups have been touted as the next driving force for the Indian economy, by the Government of India on several occasions. During the recent demonetization drive, the role of the digital economy for eradication of black money and corruption was frequently stressed upon. This strongly indicates as to how the cashless economy, and thereby, electronic commerce is considered as a beacon of hope for a better tomorrow by the Government, and accordingly, influences the policy and legislative decisions.

In India, increased Internet penetration through availability of smartphones and data network has led to a new world of opportunities for start-ups through e-commerce. According to NASSCOM's latest estimates, India's e-commerce market is estimated to be USD 33 billion in the financial year 2017. For the financial year 2016-17, e-commerce sales reached USD 16 billion with a projection of a sevenfold growth within the next two fiscals as estimated by Morgan Stanley.

By 2020, online commerce sales are expected to cross USD 120 billion mark. The number of consumers who purchase goods and services online is expected to cross 100 million by 2017 end with the e-retail market likely jumping 65% on y-o-y in 2018.

The rise of electronic commerce in India has resulted in conception of online marketplaces among other things. Online marketplace is an e-commerce platform owned by the e-commerce operator such as Snapdeal, Myntra, and Amazon etc., where vendors of any scale can sell directly to the end consumers. Thus, electronic commerce opened new avenues for small-to-medium vendors to sell their goods to a larger base of consumers at a much lower cost.

The bright performance of electronic commerce sector made it imperative for the taxman to focus on plugging any tax leakages and to provide a level-playing field to offline retailers.

E-commerce in India has witnessed a sudden boom since the late 90s with the advent of Internet, technology, and entrepreneurship. Accordingly, keeping in sync with the technology and to reduce corruption and red-tapism, the legislature moved to implement GST which is completely premised on information technology and has a futuristic approach with a focus on minimum human intervention and maximum efficiency. GST aims to usher an era of broader based indirect tax with organized business structure. The new indirect tax regime has an inbuilt incentive for compliance abidance, for example, GST regime has the provision of 'GST Compliance Rating' which will add value to the business of the honest tax payer.

GST in Principle

In the GST regime, all of indirect taxes are subsumed and tax is levied on 'supply' of goods and/ or services. GST is a destination-based consumption tax as opposed to erstwhile origin-based tax like Central Excise.

India has adopted a dual GST model wherein both Centre and States have simultaneous power to levy GST on 'supply'. Intra-state supply is subject to Integrated GST (IGST), whereas inter-state supplies are subject to both Central GST (CGST) and State GST (SGST) or Union Territory GST (UTGST). However, rate of GST for a particular 'supply' is same, be it interstate or intrastate.

For implementation of GST, the Central and State Governments along with private entities have jointly registered Goods and Service Tax Network (GSTN) to provide IT infrastructure services to Central and State Governments, taxpayers, and other stakeholders. GSTN is responsible to build and operationalize the GST system.

Taxability of E-Commerce

Taxability of the e-commerce transaction differs from other trade transactions. Generally, in such transactions, though the impression is that the e-commerce operator is the provider of goods/services, the actual provider of goods/ services are third-party vendors. Now these vendors may either belong to the organized or unorganized sector and may operate at different scales. Accordingly, taxability of this bunch is challenging, wherein the legislature is required to apply intelligible differentiators so as to achieve substantive equality.

Further to this objective, GST has special provisions with respect to e-commerce operators and vendors selling through them, such as, special category of return in Form GSTR-8, mandatory registration, tax collection at source from the vendors, tax payment on behalf of vendors in certain case of supplies notified under Section 9(5) of the Central Goods and Services Tax Act, 2017 (CGST Act), among others.

GST: Special Provisions for E-Commerce

Mandatory Registration for E-commerce Operators and their Vendors: Under the GST regime, a specific threshold limit of aggregate turnover is prescribed for registration, i.e., INR 20 lakhs in general and INR 10 lakhs for specified States. However, the threshold limit is not applicable in case of e-commerce operators.

Further, even the sellers who supply goods and/or services through an e-commerce operator are required to get registered under GST, irrespective of the threshold limit. However, there are two exceptions whereby suppliers selling through e-commerce operators may avail threshold exemption:

  1. where e-commerce operators are liable to pay tax on behalf of the suppliers, or
  2. if the supply is made through such e-commerce operator that is required to collect TCS.

GST provides for state-specific registration, and therefore, all e-commerce operators will have to register in each state from where it is making a taxable supply of goods and/or services.

Tax Collection at Source (TCS): The e-commerce operator is required to collect an amount at the rate of one percent (0.5% CGST + 0.5% SGST) of the net value of taxable supplies made through it, where the consideration is collected by such operator. The amount so collected is called as TCS.

TCS is required to be deducted in each state and deposited accordingly. This brings in significant compliance challenges to sellers and may discourage sales through online portals. The key purpose of this particular provision is to encourage compliances under GST and provide a mechanism for the Government to track suppliers who sell through e-commerce operators.

No benefit of composition scheme: Sellers who are supplying goods and/or services through an e-commerce operator are not allowed to opt for composition scheme under the GST regime.

Matching Concept and Increase in Compliances: The e-commerce operator is required to report all supplies made by the seller and the TCS collected on a monthly basis. TCS collected by the e-commerce operator from the vendors can be set-off against the overall GST liability of such vendors.

The sales reported by the e-commerce operator will have to match with the sales declared by the supplier himself at the end of every month, and difference, if any, will be added to the turnover of the supplier and consequently be liable to discharge GST on such additional turnover.

Efficiency of elaborate GST provisions depends upon the efficacy of GSTN, more so for the e-commerce sector as "the Internet economy does not pit the big against the small. It's about the swift against the slow". However, undertaking compliances on GSTN has not been a smooth walk in the first 75 days of GST implementation.

GSTN Challenges

Under the GST regime, much like e-commerce sector, revenue and disclosures are dependent upon efficient functioning of GSTN. GSTN is also part of the Digital India scheme of the Government of India to boost technology-driven growth and reduce corruption.

GSTN in its initial face has faced much criticism from certain quarters for errors in filling returns and uploading of information. On September 12, 2017, a Group of Ministers (GoM) was constituted to monitor and resolve the IT challenges faced in the implementation of GST.

GSTN crashed on September 4 and September 9, owing to unforeseen data/invoices uploads. Infosys, the blackened service provider of GSTN, blamed one unnamed large bank that uploaded a massive number of invoices in a way the system was not designed to accept.

Government has been frequently extending the deadline for submission of returns, acknowledging the technical glitches faced by the taxpayers in the wake of new system.

In Summary

The economic leverage hoped by taxpayers in the long run is keeping them optimistic about the new regime. The large corporate houses have more or less equipped themselves to be GST ready and small taxpayers are coping up.

Digital India is the most celebrated agenda of the Government of India; however, it has ended up in creation of additional trade barriers for e-commerce operators under GST. In this regard, it is yet to be seen whether GST is able to keep harmonious balance between offline and online vendors including e-commerce operators and help them to achieve organized and all-inclusive growth.

The onus to discharge GST has shifted to the e-commerce operator and they are faced with the difficulties of classification of supply and disclosures. Further, increased cost of compliance in each state is a huge deterrent for small scale e-commerce operators.

All these issues pertaining to GST implementation are being brushed aside as teething problems by the optimist and criticized by the skeptics. Nevertheless, GST is now and here for good, so the best recourse is to accept, learn, move on and make the most of it.

GST and e-commerce trade both have the potential to disrupt the market in the most positive way, given that the attitude of the stakeholders is towards acceptance and adaptability.

Originally published by Legal Era, October 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Shikha Bhardwaj
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.