For everyone, selling on e-commerce looks lucrative but it comes with challenges too, especially in case of tax compliance. As an ecommerce seller, you first have to understand the commission and taxes to arrive at the selling price and profit margin in your business.
In this post, I will break down GST regulations for online sellers, addressing common queries and providing insights so that better understanding can be made before stepping into online business.
Commission on Selling E-commerce Platforms
First, I will tell you that the ecommerce marketplace is like amazon, flipkart, meesho, myntra etc. They allow sellers like you to sell goods on their marketplace to their customers and in return, they charge a small commission on the selling price of your products.
These commission charges you can check on the respective online marketplace (for amazon click here, and for flipkart click here), so i am not discussing it here fully. It can be another post where full commission charges and how you can calculate selling price.
In this post, I will discuss the impact of GST, how to calculate, When to take registration as an online seller, and many more.
Understanding GST for E-commerce
1. What is GST and Why Does it Matter for E-commerce?
You know, GST is a unified tax system in India and is an indirect tax. It applies to sales, trading, manufacturing of goods and supply of services. For e-commerce, it applies to the sale of goods and services online.
2. Do E-commerce Sellers Need GST Registration?
I divide it into 2 parts:
- If you are not selling on an ecommerce marketplace but have started your online store selling your own products (not other sellers), you need GST registration when annual turnover crosses Rs.40 lakhs in goods and Rs.20 lakhs in services.
- Next, If you sell on ecommerce marketplaces, you need GST registration to start irrespective of your annual turnover. But, the GST council has been exempted from taking registration with conditions. The condition is that a seller can sell within the same state where he is situated and turnover should not cross the threshold limit. To sell all India, you need GST registration and exemption not applicable.
3. What Types of GST Returns Do E-commerce Sellers Need to File?
E-commerce sellers typically need to file GSTR-1 for outward supplies, GSTR-3B for monthly summary returns, and an annual return (GSTR-9, if annual turnover crosses Rs. 5 crore).
4. What is TCS (Tax Collection at Source) deducted by Ecommerce marketplaces?
For users, who are having their online store, they can charge 5-28% as applicable based on product or service, to their clients. No complications right.
But, it is not the same scenario in case you sell on ecommerce marketplaces.
You know selling goods attract GST and TCS (Tax Collection at Source). You can note down, ecommerce marketplaces have to register under GST where they file GSTR-8, not regular return GSTR-3B. Suppose, you impose 18% on selling your products on an ecommerce marketplace.
After sale, ecommerce marketplace operators will deduct 1% IGST on interstate supply or 0.5% CGST and 0.5% SGST for intrastate supplies. And as a seller, you have to file GSTR-3B based on the TCS and declare total turnover. You can avail ITC of 1% TCS and pay remaining 17% in cash to the Government (i have not included other ITC availed, if any).
5. How can E-commerce Sellers Claim Input Tax Credit (ITC)?
E-commerce sellers can claim ITC on GST paid for inputs used in their business, subject to certain conditions outlined in the Section 16 and 17 of the GST Act. You can also claim credit on 1% TCS deducted by ecommerce marketplaces.
6. What Are the Place of Supply Rules for E-commerce Transactions?
Place of supply rules determine whether a transaction is an intrastate or interstate supply, you have to charge IGST for interstate supplies (from one state to another) and CGST and SGST in case of intrastate supplies (within same state)
GST Rates and Applicability:
7. What Are the GST Rates for E-commerce Transactions?
GST rates vary based on the nature of goods or services sold, ranging from 0% to 28%, so you have to check HSN of your products and applicable rate. In the invoice, you have to define both explicitly.
8. How Does GST Impact Imported Goods Sold Online?
Whatever, you import in India, IGST is applicable. However, you can take credit of IGST paid on import of goods and the same credit can be utilized for the payment of tax in GSTR-3B return.
9. What is the Reverse Charge Mechanism (RCM) Under GST?
RCM shifts the responsibility of tax payment from the seller to the buyer for specified goods and services. It can be related to your purchases, if buying goods from unregistered persons or availing services like Goods Transport service or legal services for which recipient / buyer pays tax under RCM in GSTR-3B returns. You can avail credit on tax paid under RCM and the same be utilized for the payment of taxes.
10. What is GST rate on listing products, storage service from e-commerce like Amazon, Flipkart, and their shipping services?
You have to understand TCS is collected from their sellers only on sale of products by every e-commerce operator. Other than that, it is treated as a regular taxpayer. You are getting service from another registered person. So, you will have to pay 18% on storage services like FBA, shipping services. Each service is treated separately as everything depends on whether you want to avail it or not.
Impact of GST on E-commerce Operations for Sellers:
Now, you have to calculate the selling price with the inclusion of GST on it. e-commerce operators charge very high commission on selling price.
One issue that tax officers have faced is taking GST registration to a warehouse while working from a remote area or home. This makes GST physical verification of your registered address becomes difficult. This also makes maintaining correct records with the department difficult. Even if you take GST registration on warehouse address, you have to maintain records as per law and furnish whenever it is requested. You can use software to generate invoices and use cloud storage to save your business transactions and important documents.
Another biggest issue, I have noticed that non-matching of TCS deduction with the turnover declared in GSTR-3B returns. You should thoroughly check at what turnover 1% TCS deducted by the ecommerce operator and that turnover should match with your turnover in GSTR-3B returns. Otherwise, you may receive notice from the department.
You will need to invest in GST accounting software and automation tools to streamline compliance processes and minimize errors, as you may be working alone for your business. Further, you need to declare the right HSN in your invoice, else you may be penalized by the tax officers.
You can consult with tax experts or chartered accountants specializing in GST to ensure adherence to regulations and optimize tax planning.
Conclusion:
Compliance with GST is essential for e-commerce businesses to operate legally and stress free from any legal notice. By understanding GST regulations, addressing common challenges, and implementing best practices, you can go a long way in your business and avoid any legal notice from the department. With very little margin for sellers selling goods on ecommerce marketplaces, it is not good to get notice with interest and penalty.
So, it is highly advisable for e-commerce sellers to understand the complexities of GST and minimize the risk of non-compliance. If you have any donuts, ask me in the comments.
