Compliances for E-commerce Operators & Participants under GST & Income Tax!!

‘E- Commerce’ is the buzz word in today’s world as the pandemic-induced lockdown, movement curbs marked an inflection point for e-commerce which nudged new buyers as well as sellers onto digital platforms in India.

 This article is penned down to enlighten the compliances for E-commerce Operators and E-commerce Participants (seller) under Goods and Services Tax Act, 2017 and Income Tax Act, 1961.

Page Contents

♦ Meaning of E-commerce and E-commerce Operator

♦ Registration Requirement for E-commerce Operator and Participants under GST

♦ Returns filing under GST

♦ TCS collected by E-commerce operator under GST

♦ TDS deducted by ECO under Section 194O of Income Tax Act

♦ TDS deducted by E-commerce Participants under Income Tax

Goods and Services Tax (GST)

Before we delve into the GST implications for e-commerce operator, let’s understand the term “E-commerce and E-commerce Operator” first.

Meaning of E-commerce and E-commerce Operator

As per Section 2(44) of the CGST Act, 2017 “electronic commerce” means the supply of goods or services or both, including digital products over digital or electronic network.

Section 2(45) defines ” electronic” commerce operator” as any person who

• owns,
• operates or
• manages

Digital or electronic facility or platform for electronic commerce;

On the conjoint reading of the above two definitions, one can say that the three main ingredients to make any transaction an E-Commerce transaction are the Supplier, the Buyer and the E-Commerce operator. For the applicability of GST provisions, there are two distinct transactions:

• Between the supplier and buyer for the supply of goods or services and
• Between the supplier and E-Commerce operator for a commission/fee, as the case may be, charged, for the use of the marketplace.

For Example: Amazon and Flipkart are E-Commerce operators who facilitate third party suppliers to supply goods through their (Amazon/Flipkart) online marketplace. However, if Amazon and Flipkart supply their own goods through their own platform, then they don’t come under the definition of E-Commerce operator.

Once a transaction becomes an e-commerce transaction, one must analysis the Registration and Return filing compliances.

 Requirements for Registration

For E-commerce operators (ECOs)

Every electronic commerce operator, irrespective of his turnover, is mandatorily required to obtain GSTIN Registration u/s 24(x). This registration is in addition to and separate from GST registration obtained as normal supplier (not allowed for composition levy) thereby the operators shall be liable for two separate registrations under GST as follows:

•  TCS registration – For the purpose of levy of TCS collection.
  

TCS Registration has to be obtained in every state where the supplier is situated.  Now the question arises what if the ECO doesn’t have place of business or establishment in a state where the supplier is situated. 

In that case, the e-commerce operator may declare the Head office at its place of business for obtaining registration in that State/UT where it does not have physical presence. We will discuss collection of Tax at source u/s 52 in detail. 

• Normal Registration- For the purpose of charging GST on commission or other charges as the case may be.

Before moving ahead, it would be apt to highlight the relevant extract of Section 24 (Compulsory Registration in certain cases):

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

(i) ———-

(ii) ———

(iii) ——–

(iv) person who are required to pay tax under sub-section (5) of section 9;

(v) —–

(vi) ——-

(vii) ——

(viii) ——–

(ix) 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;

(x) every electronic commerce operator [who is required to collect tax at source under section 52].

For E-commerce Participants

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 is required to take compulsory registration under Section 24(ix);

However, as per the relief provided vide notification no. 65/2017-CT dated 15-11-2017, the persons making supplies of services other than supplies specified under sub section (5) of section 9 of the said act through an electronic commerce operator who is required to collect tax at source under section 52 of the said act, and having an aggregate turnover, to be computed on all India Basis, not exceeding an amount of twenty lakh rupees in a financial year, as the category of persons exempted from obtaining registration under the said act. This exemption is only for the supplier of “Services” not for the supplier of “Goods”.

Furthermore, if the e-commerce sellers have the plan to stock and sell the goods from the warehouse of ECO then such Place of Business shall be required to be registered as Additional Place of Business (APOB) under existing GSTIN.

It has to be borne in mind that the Composition scheme is not available for both E-commerce operator and E-commerce seller.

This article restricts itself to the limited aspect of the compliances in respect of the Services Specified by government u/s 9(5) on which the tax is to be paid by the ECO as if he is the supplier liable for paying the tax in relation to the supply of such services: –

1. Passenger Transport Services- vide Notification No. 17/2017- CT (R) and N. No. 14/2017-IT (R), both dated 28^th June, 2017. 

2. Accommodation Services- vide Notification No. 17/2017- CT (R) and N. No. 14/2017-IT (R),, both dated 28^th June, 2017. 

3. Housekeeping Services – vide N. No. 23/2017- CT (R) and N. No. 23/2017-IT (R), both dated 22^th Aug, 2017 and 

4. Restaurant Services (Cloud Kitchen)- vide N. No. 17/2021- CT (R) and N. No. 17/2021 -IT (R), both dated 18^th Nov, 2021. 

Returns Filing under GST

For E-commerce Operator (ECO)

> E commerce operators are required to file their GST return in form GSTR 8 (TCS return) on monthly basis. The due date for filing GSTR-8 for E-commerce sellers shall be 10th day of following month.

>   Every electronic commerce operator required to collect tax at source under section 52 shall furnish Annual Statement referred to in sub-section (5) of the said section in FORM GSTR – 9B.

>   ECOs shall also be required to furnish their regular returns (for commission income, fees or other charges as the case may be) in Form GSTR-1 and GSTR-3B on regular or periodic returns under QRMP scheme.

>  An ECO whose aggregate turnover during a financial year exceeds five crore rupees (₹5cr) shall also be liable to furnish an Annual Return (GSTR-9) along with a self-certified Reconciliation Statement (GSTR-9C), if it exceeds two crore rupees (₹2cr) but upto five crore rupees (₹ 5cr) then he shall be liable to furnish GSTR-9 only and if it is up to two crore rupees (₹2cr) then both GSTR-9 and GSTR-9C are not mandatory.

For E-commerce participants

>  A registered e-commerce participants shall be required to file GSTR 1 & GSTR 3B on regular or periodic returns depending upon the turnover of the business. Businesses having turnover up to Rs 5 crores can opt for the QRMP scheme (Quarterly Return Monthly Payment).

>  They also require to claim this TCS credit as collected by the ECO in his GSTR-8 by filing the claim another return called “TDS/TCS CREDIT RECEIVED RETURN” through which TCS would be credited in their e-cash ledger. This shall be filed on monthly basis if TCS is collected by an ECO in a particular month and

>  A registered e-com participant whose aggregate turnover during a financial year exceeds five crore rupees (₹5cr) shall also be liable to furnish an Annual Return (GSTR-9) along with a self-certified Reconciliation Statement (GSTR-9C), if it exceeds two crore rupees (₹2cr) but upto five crore rupees (₹ 5cr) then he shall be liable to furnish GSTR-9 only and if it is up to two crore rupees (₹2cr) then both GSTR-9 and GSTR-9C are not mandatory.

Tax Collected at Source (TCS) for E-commerce operator

The Tax collected at source (TCS) acts as a mechanism, wherein, the e-commerce operator collects part of the tax operator when the supplier supplies the required goods or service through its portal.

Section 52 mandates every electronic commerce operator (hereafter in this section referred to as the “operator”), not being an agent, shall collect an amount calculated at such rate not exceeding one per cent. of the net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator.

Explanation.––For the purposes of this sub-section, the expression “net value of taxable supplies” shall mean the aggregate value of taxable supplies of goods or services or both, other than services notified under sub-section (5) of Section 9, made during any month by all registered persons through the operator reduced by the aggregate value of taxable supplies returned to the suppliers during the said month.

In simple words, ECO shall be required to collect TCS at a rate of 1% IGST or 0.5% CGST and 0.5% SGST of the aggregate value of net taxable supplies made during the said month. Here, one must note that if there is net sales return during a particular month then TCS shall not be collected at all during the said month.

For detailed analysis, one may refer below link related to FAQS issued by CBIC regarding TCS

 https://taxguru.in/goods-and-service-tax/tax-collection-source-tcs-gst-faqs.html

After discussing registration and returns filing requirement for both e-commerce operator and E-commerce participant, now let’s jump to the compliances required under Income Tax Act.

For E-commerce Operator (ECO)

Section 194O – TDS on Payments Made to e-commerce Participants

The purpose behind insertion of this section is that earlier there was no TDS on payments made to e-Commerce participants. They were required to independently file their income tax returns. Therefore, many small e-Commerce participants did not file their ITR’s and escaped the tax liability.

 Section 194O has been introduced w.e.f. 1 October 2020.

Section 194O- TDS on payment made by E-commerce Operator to E-commerce participants is being reproduced hereunder: –

(1) Notwithstanding anything to the contrary contained in any of the provisions of Part B of this Chapter, where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform (by whatever name called), such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of one per cent of the gross amount of such sales or services or both.

Explanation. —For the purposes of this sub-section, any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be the amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sale or services for the purpose of deduction of income-tax under this sub-section.

(2) No deduction under sub-section (1) shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of an e-commerce participant, being an individual or Hindu undivided family, where the gross amount of such sale or services or both during the previous year does not exceed five lakh rupees and such e-commerce participant has furnished his Permanent Account Number or Aadhaar number to the e-commerce operator.

(3) Notwithstanding anything contained in Part B of this Chapter, a transaction in respect of which tax has been deducted by the e-commerce operator under sub-section (1), or which is not liable to deduction under sub-section (2), shall not be liable to tax deduction at source under any other provision of this Chapter:

Provided that the provisions of this sub-section shall not apply to any amount or aggregate of amounts received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale or services referred to in sub-section (1).

Explanation. —For the purposes of this section, —

 (a) “electronic commerce” means the supply of goods or services or both, including digital products, over digital or electronic network;

b) “e-commerce operator” means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce;

(c) “e-commerce participant” means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce;

(d) “services” includes “fees for technical services” and fees for “professional services”, as defined in the Explanation to section 194J.]

In simple terms, an e-commerce operators shall deduct TDS @1% at the time of credit of the amount of sale of goods, services, or both to the account of an e-commerce participant or at the time of making payment to an e-Commerce participant by any other mode, whichever is earlier. 

Exceptions to Section 194O

• Non-resident e-Commerce participants are exempted from the scope of this section. (In such cases the provisions of “Equalization levy” are applicable.)
• A ceiling limit of Rs 5 lakh is set only for resident individuals and HUF. Thus, an e-Commerce operator is not required to deduct TDS if the amount, paid or credited to individuals/HUF during a financial year, does not exceed Rs 5 lakh.

Applicability on payment gateway:

In e-commerce transactions, the payments are generally facilitated by payment gateways. It is represented that in these transactions, there may be applicability of section 194-0 twice i.e., once on e-main commerce operator who is facilitating sell of goods or provision of services or both and once on payment gateway who also happen to qualify as e-commerce operator for facilitating service.

To illustrate a buyer buys goods for Rs. 1.5 lakh rupees on e-commerce website “XYZ”. He makes payment of 1.5 lakh rupees through digital platform of “ABC”. On these facts liability to deduct tax under section 194-0 may fall on both “XYZ” and “ABC”.

In order to remove this difficulty, it is clarified that the payment gateway will not be required to deduct tax u/s 194-0 of the Act on a transaction, if the tax has been deducted by the e-commerce operator under section 194-0 of the Act, on the same transaction. To facilitate proper implementation, “ABC” may take an undertaking from “XYZ” regarding deduction of tax.

For E-commerce Participant

The bare analysis of Section 194O seems simple but when we delve deeper into the section, one question arises i.e., Will TDS be deducted by the e-commerce participant u/s 194H or 194C, 194J as the case may be on the commission/service fee charged by the ECO?

Well, one school of thought opines that as per section 194-O, TDS is required to be deducted on gross amount of sales and where transaction is covered under this section, then TDS will not be deducted under any other provision as Section 194O has overriding effect on any other provisions of the said act and

Another school of thought is that an exemption provided under sub section 3 to section 194O i.e., where TDS is deducted u/s 194O then no TDS shall be deducted in any other provisions of this act, is to remove the double taxation effect in case of payment gate way transactions.

Section 194O is an independent section with respect to the TDS u/s 194H or 194C as may be applicable thereby TDS shall be deducted by the e-commerce participant on the commission/ service/fee charged by the ECO.

 Author’s Comment:

In my humble but firm belief, being an E-commerce participant, you must comply with the provisions of tax deducted at source and should deduct TDS u/s 194H or 194C or 194J as may be applicable on the commission, fees or any other charges by the ECO in order to obviate litigation from the department in future and claim the TDS Reimbursement Amount on their respective e-commerce portal.

 M. L. Kejriwal & Co. is a Delhi based CA Firm offering a plethora of services relating to GST, Income Tax, refunds, ROC, MSME & other tax related matters and the author can be reached at kansalricha4@gmail.com.

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Disclaimer: The views presented are in personal and generic form and not as a legal advice. Users of this information are expected to refer to the relevant existing provisions of the applicable laws.