India: Goods And Services Tax And E-Commerce

Last Updated: 23 November 2018
Article by Shubham Borkar and Anushree Saxena
Most Read Contributor in India, January 2019

Introduction

It is estimated that Indian E-commerce market has crossed US$ 38.5 billion as of 2017 March1 and India will soon become second largest E-commerce market platform. This Article analyses the effect of GST on E-commerce in India and also describes the forms procedure and due dates for returns to be filed by a E-Commerce Operator

About GST

GST as we all know is a new legislation that came into effect on 1, July 2017. It has replaced many Indirect taxes in India.

GST is a comprehensive, multi-stage, destination-based tax on value addition and it has very clear rules and regulations for specific segments which makes it more powerful and applicable, specifically in the field of e-commerce. For eg. Section 2(43)2, (44)3, (45)4 provides the meaning of following-Electronic Cash Ledger, Electronic commerce, Electronic commerce operator. This shows the inclusion of E-commerce transactions in GST legislation.

E-Commerce

E-commerce means commercial transactions taking place electronically on the internet. It can be observed that E-commerce has grown tremendously in last decade. In erstwhile regime there were no specifically dedicated laws to govern the taxation of these online transactions in India. Whereas under the GST (Goods and Service tax) regime this problem has been solved and the statute encompasses all e-commerce transactions.

The historical definition of market was "a place where buyer meets seller". But e-commerce revamped it and inserted some innovations, so e-commerce the buying and selling of goods or services using the internet, and the transfer of money and data to execute these transactions Eg. Flipkart, Amazon, or Snapdeal etc.

Impact of GST on E-Commerce

  • It helped in removing the cascading effect. (double taxation, tax on tax) and it expanded the horizon of e-commerce operators. In simple language it can be understood as now E-commerce has become easier and more compatible to be done.

For example-

Earlier Scenario

Action

Cost 10% tax total
Buys Raw material

100 10 110 VAT

Manufacturers@ 40

150 15 165 Excise

Add Value@30

195 19.5 214.5 VAT

Add value@20 234.5 23.45 257.95 CST

Total

190 67.5 257.95

No input can be claimed.

GST Scenario

Action

Cost 10% Tax Liability Total

Buys Raw material

100 10 10 110

Manufacturer@40

150 15 5(15-10) 155

Add value@30

185 18.5 3.5(18.5-15) 188.5

Add value@20

208.5 20.85 2.35(20.85-18.5) 210.85

Total

190 20.85 20.85 210.85

A major drop down on the cost can be clearly noticed.

  • Trade barriers have minimized with this new unified taxation policy known as GST as prices now are determined by a single rate and not arbitrarily by different states. The rates provided by the GST are same for entire nation. So, it is making inter state transactions easy and will remove complexity. In earlier tax regime the tax rates were different more over it was state wise rates. Now its "One nation one tax", trade barriers cease to exist as GST is inclusive of entry tax.

Place of Supply

This is the most important factor as GST is a destination-based tax so the state where goods are consumed, or the last destination of goods are taxed, in simple terms it can be explained that the place where the goods are consumed, that State has the right to collect GST. Other rules under GST also revolves around the place of supply. It basically explains the category under which the transaction will fall interstate or intra state and accordingly levy of IGST, CGST, SGST will take place. The last destination of goods is of utmost importance. This rule is applicable on all the e-commerce operators and suppliers.

There are two scenarios possible in a typical e-commerce transaction

  1. When shipping address will be same as billing address, in that case place of supply will be the place where goods are delivered.
  2. Where shipping address is different from that of billing address- In this case the location of the buyer will be considered as the place of supply and point of taxation as well. (billing address)

Threshold Limit for E-Commerce Operators Under GST

Section 245 read with Section 226 of the CGST Act, 2017 states:

  • All E-commerce operators need to be registered but no threshold limit is being specified in the act. E-commerce sellers need not to register if their total sales is less than Rs. 20 lakhs.7

Composition Scheme

As per section 10 of CGST Act, 2017 all medium and small-scale business are allowed for composition scheme. But 10(2) clearly specify that e-commerce operators are kept out of its ambit. So, it can be concluded that no benefits can be fetched out of composition scheme for e-commerce operators. In simple words it can be noted that e-commerce business operator are ineligible for composition scheme.

Different Modes of Sale

There are broadly two categories of operation of online business, first is direct which means where the seller produces the product and directly sells it in the market through e-medium, for this GST filling is plain and simple standard GST filling rules can be opted.

E-commerce platforms are second type of online business, as stated above operators serve as platform between buyer and seller and works on commission basis on each sale. This type of transactions attracts different type of GST implementation. This is operated through TCS (tax collected at source) as the term itself is self-explanatory (TCS is basically tax payable by seller who collects it from purchaser, and submits it to Government and later on purchaser can claim it from the department) when operators executes a sale between the buyer and seller, GST provisions specifies a deduction of 1% of the sale amount before sending the payments to the seller. This amount is then being paid to the Government and then seller can further claim it from the department on its own GST filings.

An e-commerce platform remits and collects tax when supplier sells goods through e-commerce medium.

It is mandatory for both seller and operator to report all the sales to the Government, both the reports must reconcile, if there is any mismatching the reconciliation then seller is responsible for the outstanding, TCS basically helps to keep a track upon seller and operator.

Input Tax Credit Mechanism

An E-commerce seller can avail input tax credit. Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs.

Procedural Formalities

Followings are mandatory forms to be filed by E-commerce operators and suppliers.

Form number Due dates
GSTR 1 details of outward supply (sales) 11th of next month
GSTR 2 details of inward supply (purchase) 15th of next month
GSTR 3 monthly return along with payment 20th of next month
GSTR 8 details of supplies processed and the amount of TCS collected* 10th of next month

GSTR 9 annual GST return. On or before 31st December of the subsequent financial year

*applicable to e-commerce operators only.

GSTR 8 is one of the most important form which need to be taken utmost care for an e-commerce operator.

Following is the relevant information regarding GSTR 8:

  • GSTR – 8 is the monthly return that under the new GST law, e-commerce companies (defined as any person who owns/operates/manages a digital/electronic platform for commerce) registered for TCS, need to file each month. The information provided by the companies is made available to suppliers on their GSTR 2.
  • Every GST registered E-commerce operator needs to file for GSTR – 8, since it is mandatory for all E-commerce operator to obtain a GST and TCS registration.
  • GSTIN:The 15-digit GSTIN (Goods and Services Taxpayer Identification Number) received from the government needs to be entered in this field. A provisional id can be used too in case the concerned person/party does not have a GSTIN.
  • Legal name of the registered person:The name of the taxpayer shall be auto-populated in this field, post logging-in.
  • Details of supplies made through e-commerce operator:The gross values of supplies, as supplied to registered/unregistered people, along with the value of the supplies returned by the same shall be entered in the field. The difference in value between the two shall be the net liable TCS amount.
  • Amendments to details of supplies in respect of an earlier statement:Corrections to data, if any, in the return statements submitted in the previous months, can be made in this field.
  • Details of interest:If the TCS is not paid by the due date, by the operator, then there is an interest levied on the account on the amount of due TCS.
  • Tax payable and paid:This field contains within it, the details of the total tax payable in namely SGCT, CGST and IGST respectively, and the amount of tax already paid till date.
  • Interest payable and paid:The interest levied for late payment (18%) is calculated in this file, on the outstanding amount.
  • Refund claimed from electronic cash ledger:Refunds, if any, to be claimed from ECL, need to be detailed here. However, the refund can only be claimed once all the TCS liability of the ongoing tax period has been discharged.
  • Debit entries in cash ledger for TCS/interest payment [to be populated after payment of tax and submissions of return: The information regarding, the amount of tax collected at source needs to be entered in this field, which will then flow to Part C of GSTR – 2A of the e-commerce operator filing for GSTR – 8
  • If the GST is not filed on time, a penalty of Rs. 100 on CGST and SGST each is applicable, which amounts to Rs. 200 a day (maximum payable up to Rs. 5000), along with a late fee on 18% interest per annum, calculable from the due date to the date of actual payment clearing

Invoicing

Every supplier is liable to maintain invoice-wise details of supplies to registered taxable persons and the aggregate value of supplies to unregistered persons made through the E-commerce platform must be provided. Hence it is very important to raise GST compliant Invoices.

Here are some details that should be mentioned in the Sales Invoice –

  • Name, address, and GSTIN of the supplier
  • Invoice number
  • Date of issue
  • Name, address and GSTIN of the recipient (if registered)
  • HSN code
  • Description of the goods/services
  • Quantity of goods
  • Value(after discount)
  • Rate and amount of GST

Conclusion

In my opinion GST is one of the biggest fiscal reform that our country has witnessed. It is unified taxation system in a federal country like India.

Though the compliance under GST has increased for the E-commerce industry, still it improves the market for the local suppliers as they can sell in any state with same tax rates. This will promote more sellers to go online and provide best services to the customers. Also, any small start-up will get a huge market opening if they are carrying out a trade using the e-commerce market.

Though there is a little fuss in the market relating to GST, still it can be concluded that the State will be able to regulate over the e-commerce transactions. In simple terms it can be understood that State will be able to make revenue from this sector, but some practical implications are there for example that of reverse charge mechanism. Law is not very clear about that. But overall implementation of GST on e-commerce is appreciable. Though there is a little fuss in the market relating to GST, but still if we consider e-commerce sector, it can be concluded that the State will be able to regulate over the e-commerce transactions, more opportunities will be there in simple terms it can be understood as State will be able to make revenue from this sector, but still some practical implications problems are there for example say that of reverse charge mechanism. Law is not very clear about that. But overall implementation of GST on e-commerce is appreciable.

Footnotes

1 Report by Internet and Mobile Association of India

2 "electronic cash ledger" means the electronic cash ledger referred to in subsection (1) of section 49

3 "electronic commerce" means the supply of goods or services or both, including digital products over digital or electronic network;

4 "electronic commerce" means the supply of goods or services or both, including digital products over digital or electronic network;

5(1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:

Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.

6Notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act, ––

  1. persons making any inter-State taxable supply;
  2. casual taxable persons making taxable supply;
  3. persons who are required to pay tax under reverse charge;
  4. person who are required to pay tax under sub-section (5) of section 9;
  5. non-resident taxable persons making taxable supply;
  6. persons who are required to deduct tax under section 51, whether or not separately registered under this Act;
  7. persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise;
  8. Input Service Distributor, whether or not separately registered under this Act;
  9. persons who supply goods or services or both, other than supplies specified under sub-section (5) of section 9, through such electronic commerce operator who is required to collect tax at source under section 52;
  10. every electronic commerce operator;
  11. every person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered person; and
  12. such other person or class of persons as may be notified by the Government on the recommendations of the Council.

7 Notification No. 65/2017 – Central Tax dated 15.11.2017

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.

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