It’s the era of e-commerce. Shopping websites are much more than just online shopping destinations. Many MSME Start-ups have started working through e-business mode. After you’ve evaluated your online store idea and have a plan for product sourcing, it’s highly recommended that you research any financial & tax related regulations that may affect you when opening an e-commerce store. Knowing about them ahead of time is the key to working through them. In India, among other compliances, two of the mainstream tax compliances are of Direct Tax i.e. Income Tax and Indirect Tax i.e. GST. Further correct Accounting/Book-keeping aspect is also key to success of any business model. In this article, we will cover that part as well, because incorrect accounting may lead to wrong reporting of Tax related matters. First of all, let’s understand basic concepts for your business:-
(A) Mode of Sales/Revenue Generation
Sales can be generated from following modes of revenue generation:-
1. Website Sales: Sales through own website
2. E-Commerce Portal Sales: Sales through listing of your products on online shopping websites
3. App Sales: Sales through Mobile applications launched for your business
4. Direct Sales: Over the counter sales, through promoting/advertising your business on social networking sites.
Accounting for Sales
- You need to maintain adequate records/reports to account for all modes of sales as given above.
- Accounting need to be done in such a way that same set of data can used for all types of compliances like GST, TDS, TCS, Income Tax, ROC & preparation of financial statements etc.
- Sales Return in online shopping have been reported to be on higher side (from 20% to 30%), accounting for Sales Return should be done appropriately.
- MIS Reports generated from e-commerce websites & your own websites should be regularly reconciled with accounting reports
- Accounting of Sales in Foreign Currency & Courier Shipping Bills is also important aspect (Sales through International Couriers)
- Accounting Software should be such that it is able to provide reports as per following break ups:-
- GST Rate wise sales breakup
- E-Commerce Operator wise sales breakup
- State wise sales breakup
- B2B & B2C wise sales breakup
- Exports LUT Sales & Non LUT Sales wise sales breakup
- Mode of Sales wise sales breakup
- HSN wise Quantity sales breakup
- GST Head wise Tax breakup (CGST/SGST/UTGST/IGST)
- Credit Notes reconciling Invoice against which the same is issued
- Bill To & Ship To wise delivery report
GST Compliance for Sales
Following are the keys areas of GST compliance among other regular return filing.
- State Wise & GST Rate Wise Reporting of Unregistered customers (B2C) in GSTR 3B (Table 3.2) as well as GSTR 1 (Table 7)
- Providing option to customers on website to submit their GST Numbers (B2B)
- Apply for IGST Refund (LUT/Non LUT) on Exports Sales
- Apply for LUT on GST Portal for Exports Sales
- Issuing E-Way Bills for bigger consignments
- Accepting on GST Portal, TCS collected by e-commerce companies from supplier of goods.
(B) Payment Collection
You need to provide multiple payment options, so that customers can make payment through the mode as it may be comfortable for them. You also need to work on payment gateway charges/collection charges/credit card swipe charges etc. Following are alternatives for payment collection:-
1. Payment Gateway: Tie up with some secured payment gateway to accept online payment through following modes-
- Credit Cards
- Debit Cards
- Net-Banking
- EMI Options
- Wallet Payment
- UPI
2. Cash on Delivery (COD): Tie up with Courier Company for Product delivery & Cash Collection
3. Bank Transfer: Providing details of your Bank Account on your website for payment by customers through:-
- NEFT
- RTGS
- IMPS
- Cheque deposit
- Cash deposit in Account
4. Forex Payment: Making arrangement with International Payment Gateway’s for accepting payment in Foreign Currency (Forex).
5. E-Commerce Websites Collection: Big e-Commerce giants usually have their own tie ups for payment collection through Payment Gateways & CODs etc. They collect the payment on behalf of vendors who list the products on the online shopping websites & then remit to vendors through regular settlements.
Accounting for Sales Payment Collection
- Payment Gateway Companies, Wallet companies, e-commerce companies & Courier Companies providing COD option usually charge Payment Gateway Charges/Commission & net amount is remitted to the supplier of products/services. Hence accounting for Commission on the basis of Invoices received from these companies vis a vis Total receipt for Sales amount from customer to be reconciled and accounted for.
- Accounting of collection in Foreign currency on the basis of Swift messages, Transaction Voucher from Bank & Foreign Inward Remittance Certificate (FIRCs)
- Regular Reconciliation of Sales Proceeds credited in Bank with the payments due from Payment Gateway/Wallet/e-commerce companies/Courier Companies-COD through MIS reports available on their portals.
- Claiming GST Input Tax Credit on the commission invoices of Payment Gateway companies.
(C) Expenses related Compliance
Expenses related Tax compliances for e-commerce business aspects have been discussed in this article for effective financial management.
- Deposit of RCM on Import of Services from outside India
- Claiming IGST Input Tax Credit on the basis import shipping bills/courier shipping bills for Import of Goods
- Providing your GST number while purchasing online products for claiming GST Input Tax Credit
- Regular reconciliation of GSTR 2A.
- Deposit of Equalisation Levy (u/s. Section – 165 of Income Tax Act) on the Advertisement Services by Non Residents.
- Deducting TDS on the Expenses Invoices payment:
- Own Website & Mobile Application development & maintenance company (u/s.194J)
- e-commerce portal company’s invoices of Freight/logistics services (u/s.194C)
- e-commerce portal company’s invoices of Payment Collection/Commission services (u/s.194H)
- e-commerce portal company’s invoices of Advertisement services (u/s.194H)
- Advertisement company/social networking site/search engines for advertisement services (u/s.194C)
- Commission Invoices of Payment Gateway Companies (u/s.194H)
- Freight Invoices of Courier/Logistics companies (u/s.194C)
- Reimbursement claim of TDS deducted from e-commerce companies & payment gateway companies
- Deposit of TDS for Rent of Office Premises & Godown (u/s.194I)
- Deposit of TDS on the professional charges of consultant who registered your Trade Mark, Brand & Copyright (u/s.194J)
- Deposit of TDS on the professional fees of your GST , Income Tax & ROC Consultant (u/s.194J)
- Deposit of TDS on the professional fees of your content writer and digital marketing company (u/s.194J)
- Proposed TDS u/s.194-O (w.e.f. 01/10/2020) is applicable to levy a TDS of 1% on e-commerce transactions requiring an ecommerce operator to deduct tax at the time of credit of sale/service amount to the account of e-commerce participant or at the time of payment thereof by any mode, whichever is earlier. Hence this section is independent of existing TDS sections. Further TDS u/s.194-O is to be deducted by e-commerce operator vis a vis. TDS u/s.194C/J/H/I as per details above is to be deducted by vendors of e-commerce operators i.e. supplier of goods/services.
- Generating TDS Certificates & affixing Digital Signature Certificate (DSC) on TDS Certificates.
- In case your vendor has obtained Lower Deduction Certificate u/s.197, then TDS would be deducted at such lower rate.
- In case any of above services is being taken from Foreign Company/Non Residents, then TDS to be deducted u/s. 195 at the rates applicable for Non Residents.
Concluding Remarks
The trend of online shopping is increasing day by day. Shortage of time and attractive offers are the two main factors boosting the online shopping stores these days. Books, Electronic items , accessories , apparels , movie tickets , insurance policies and booking air and rail tickets almost all the products that are available in the market can be purchased from online stores. Thus, every seller/vendor is opting to do business online. With effective financial management & tax compliance, one can do business hassle free.
Please refer all the relevant section, rules, notifications and amendments as applicable. The Author is not responsible for any losses incurred. Content is merely for sharing knowledge & Educational Purpose only. Author can be reached at casagargambhir@gmail.com for any queries, issues & recommendations.
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