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GST Impact on E-Commerce

For decades India has been plagued with various indirect tax disputes and uncertainties. Now, with the implementation of Goods and Service Tax from the 1st of July 2017, a uniform tax regime is expected to usher in some clarity on indirect taxation. Under GST Law, a new concept of taxation has been introduced for the e-commerce sector, which will impact all kinds of e-commerce operators and suppliers.

By definition, an e-commerce operator is a person who owns, operates or manages digital or electronic facility or platform for electronic commerce; a Supplier on an e-commerce platform is a person who supplies goods and/or services on an e-commerce platform.

In this post we have pointed out what will be the requirements from an e-commerce operator and supplier under GST-

1. Unregistered E-commerce Operators& Suppliers will be weeded out of the online space

While GST registration in normal case is mandatory where turnover is Rs. 20 lakh or more, if a supplier wishes to sell through an e-commerce platform he / she needs to be GST registered irrespective of  the turnover. This is applicable for the e-commerce operators as well. Without proper registration they too, will be forced to move out of the online system.

2. Levy of tax

The threshold exemption granted to a supplier is 20 Lakhs and for the special category States the limit is INR 10 lakhs, under the CGST Act, 2017. However, these limits are not applicable for an e-commerce operator and he shall be liable to take registration and pay taxes on every penny of supply made by it. Noteworthy is the fact that such limits are also not applicable for a supplier of goods or services who executes the supply through the e-commerce operator.

3. Standard Taxes on Standard Pricing

Under the present taxation system, E-commerce Operators prefer to list those sellers on their portal who charge lower taxes, thereby making the product cheaper than the local retail prices local retail prices. However, with GST, there will be standard tax rates for each product and tax arbitrage will not be possible, bringing online and offline Suppliers to the same level in terms of costing and pricing. Now, all Suppliers will be required to be registered and charge taxes at standard rates creating a level playing ground for all online sellers in terms of product pricing.

4. Tax Collected at Source

Under GST, e-commerce operator will have to deduct 2% tax per transaction while making payments to sellers listed on their portal. This Tax Collected at Source (TCS) will be handed over as collection towards GST to the government. This rule however does not apply to offline retailers. With TCS, capital will be locked away for periods between 20-50 days depending on the transaction date. The remarkable impact on the cash flow will force smaller firms to seek additional working capital or ignore the e-commerce marketplace altogether, as it may not offer envisaged convenience and benefits.

5. Non-eligibility for Composition Scheme

Irrespective of whether a Supplier who supplies goods or services through an e-commerce operator has a turnover less than Rs 50 Lakhs, he/she will not be eligible to be registered under the Composite Scheme.

6. Returns and Refunds

Majority of the products sold online carry a return date of 30 days which translates to about 15 – 20 million transactions per month and the returns and refunds for these have to be done with utmost care. The returns are required to be filed monthly now by both parties and refund adjustment will need special attention affecting tax liability.

For E-commerce Operator: Returns & Tax Payment Process

On the 10th of a month, net taxable supplies of previous months + pay tax collected from suppliers should be furnished in Form GSTR-8.  Any change to be mad etc this form are furnished in Form GST ITC-1. The discrepancy must be rectified in the return for the month in which it is communicated

For E-commerce Suppliers: Return Process 

The return process for suppliers will be the same as the return process applicable to a Regular Dealer

▪  Details of outward supplies made on e-commerce platforms have to be furnished by a Supplier in Form GSTR-1 on 10th of a monthAll invoice-wise details of supplies to registered taxable persons and aggregate value of supplies to unregistered persons made through the e-commerce platform must be provided.

▪ The aggregate amount of tax collected by e-commerce operators in the previous month will be auto populated, based on Form GSTR-8 on 11th of a month.

▪ On 15th of a month, in Form GSTR-2 a supplier can accept or modify the details of tax collected by e-commerce operator in Form GSTR. This tax collected will be credited to the supplier’s electronic cash ledger on provisional basis, and it can be set-off against the tax liability.

▪ A Supplier can make changes in Form GST ITC-1 on 21st of a month, wherein supplies reported by the e-commerce operator will be shown. If any incorrect supply has not been rectified by the Supplier, the difference in amount along with interest will be added to the tax liability of the supplier for the succeeding month.
Source: https://www.aces.gov.in/

In Conclusion: Industry experts have welcomed the standardization that GST promises, but it is believed that tax collected at source will deter sellers from listing themselves on e-commerce marketplaces and hit the e-commerce industry. Also, companies with business units in the same or different state would be required to register themselves in each of the State where they have their presence. Thus, compliance are expected to multiply. We will have to wait to see how the businesses grow and flourish under the new GST era and whether Government is likely to reconsider the proposed law addressing the concerns raised by e-commerce players.

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