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GST Insights of E – Commerce Industry

Insights

It is estimated that Indian E-commerce market has crossed US$ 38.5 billion as of 2017 March and India will soon become the largest E-commerce market platform by 2022. This Article analyses the effects of GST on E-commerce in India and describes the external factors which have led to the formation of growth acceleration in the Indian E-Commerce Industry.

What is E-Commerce?

E-commerce means commercial transactions taking place electronically on the internet. It can be observed that E-commerce has grown tremendously in the 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, now E-commerce means buying and selling of goods or services using the internet, and the transfer of money and data to execute these transactions E.g. Flipkart, Amazon, or Snapdeal etc.

A. Market Size:

Propelled by rising smartphone penetration, the launch of 4G networks and increasing consumer wealth, the Indian e-commerce market is expected to grow to US$ 200 billion by 2026 from US$ 38.5 billion. During 2018, electronics was the biggest contributor to online retail sales in India with a share of 48 per cent, followed by apparel at 29 per cent.

B. Investments/ Developments:

  • ➢  Flipkart, after getting acquired by Walmart for US$ 16 billion, is expected to launch more offline retail stores in India to promote private labels in segments such as fashion and electronics. In September 2018, Flipkart acquired Israel based analytics start-up Upstream Commerce that will help the firm to price and position its products in an efficient way.

  • ➢  Paytm has launched its bank – Paytm Payment Bank. Paytm bank is India’s first bank with zero charges on online transactions, no minimum balance requirement and free virtual debit card

  • ➢  E-commerce industry in India witnessed 21 private equity and venture capital deals worth US$ 2.1 billion in 2017 and 40 deals worth US$ 1,129 million in the first half of 2018.

  • ➢  As of June 2019, Google is also planning to enter the E-commerce space by 2020. India is expected to be its first market.

  • ➢  Reliance retail is going to launch online retail this year. It has already launched its food and grocery app for beta testing among its employees.

➢ Google and Tata Trust have collaborated for the project ‘Internet Saathi’ to improve internet penetration among rural women in India.

C. Government Initiatives:

Since 2014, the Government of India has announced various initiatives namely, Digital India, Make in India, Start-up India, Skill India and Innovation Fund. The timely and effective implementation of such programs will likely support the e-commerce growth in the country. Some of the major initiatives taken by the government to promote the e-commerce sector in India are as follows:

  • ➢  In order to increase the participation of foreign players in the E-commerce field, the Indian Government hiked the limit of foreign direct investment (FDI) in the E-commerce marketplace model for up to 100 per cent (in B2B models).

  • ➢  In the Union Budget of 2018-19, government had allocated Rs 8,000 crore (US$ 1.24 billion) to BharatNet Project, to provide broadband services to 150,000-gram panchayats

  • ➢  As of August 2019, the government is working on the second draft of e-commerce policy, incorporating inputs from various industry stakeholders.

  • ➢  The heavy investment of Government of India in rolling out the fiber network for 5G will help boost e-commerce in India

Impact of GST on E-Commerce

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 e.g. Section 2(43), (44), (45) provides the meaning of following-Electronic Cash Ledger, Electronic commerce, Electronic commerce operator. This shows the inclusion of E- commerce transactions in GST legislation.

➢  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.

➢  Due to ITC availability at each step – 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 interstate 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.

No Benefit under Composition Scheme: As per section 10 of CGST Act, 2017 all medium and small- scale business are allowed for composition scheme. But S.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 operators 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.

Tax Collection at Source by Marketplace Operator:

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.

  • ➢  Marketplace enables third-party sellers to register and sell online on their platform.

  • ➢  Marketplace charges a subscription fees/ commission on sale value from listed sellers.

  • ➢  Third-party sellers under this model gain access to a larger customer base, registered with marketplace.

  • ➢  Customer on the other hand gain access to multiple sellers and competitive prices for desired products.

  • ➢  Items purchased on such marketplaces are either shipped by Merchant/Third-party seller directly or through the fulfilment centre managed by Marketplace Operator.

    No threshold for GST registration: Government has specified a threshold limit for all the businesses. A business is liable to register for Goods and Services Tax once such threshold limit is breached. However, such limit is not applicable in case of E-Commerce Sellers*.

    *e-commerce sellers need not register if total sales are less than Rs. 20 lakh Notification No. 65/2017 – Central Tax dated 15.11.2017

    Mechanism of Sale: The uprising of Electronic Commerce in India has also resulted in conception of  online marketplaces. A Marketplace is an e-commerce platform owned by the E-commerce Operator such as Flipkart, Snapdeal and Amazon. Some of the features of a marketplace model are: –

    Analysis

    In my opinion even 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 uncertainty 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 overall implementation of GST on e-commerce is appreciable.

    This would also be a major pillar for new job creation in India & multiply the domain of Indian service industry sector. Also, as Government & Telecom Operator are rolling out the fiber network for 5G network, this will help boost the E-commerce industry to another level of Success.

Profile photo of Advocate Rahul Kakkar Advocate Rahul Kakkar

Gurgaon, India

Rahul has 12 years of rich professional experience in helping clients of India & more than 35 International markets to transform their business through sales and marketing excellence. He is an MBA from ABS, AU and LL.B from Innovative School Of Law. He is also ISO 9001:2008 QMS certified professional. He is currently a member of Bar Council of Delhi, Sales Tax Bar Association & All India Federation of Tax Practioner’s. He is also an executive member of STAR India – Society For Tax Analysis & Research. Currently the Official Taxation consultant for Both Top E commerce Operators in India. Posses a record of doing over 500 GST REG in a month for E com sellers. Done over 5000 E com Sellers - GST REG & Amendments in GST Profile.

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