e-Commerce and Compliance under Income Tax & GST

E Commerce is the buzz word in today’s world. Sale and purchase of goods and availing services has gone on digital platform. The world is shrinking as the E commerce platforms are growing. Being a new business model, the compliance and taxation under E commerce is multiple and complex.

Definition of E commerce and E commerce operator as per CGST Act, 2017 are

Section 2(44): electronic commerce means supply of goods or services or both including digital products over digital or electronic network.

Section 2(45): electronic commerce operator means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce

There are multiple business models under E commerce like Principal to Principal. Principal to Intermediatory, Aggregator, Inventory Led Model, Open Market Place Model, Managed Market Place etc., The compliance and complexities vary based on the business model chosen.

E- Commerce Business are governed by the multiple law of land, the main laws includes

• Consumer Protection Act 2019
• E-Commerce Rules 2020
• GST for E-Commerce
• Income Tax Act

GST Registration:

E-commerce portals are charging a commission from various suppliers. It amounts to support services, falling under Tariff heading 9985, and shall attract GST at the rate of 18%. E-commerce portals are required to be compulsorily registered under Section 24(ix) of the CGST Act, and shall be paying GST on commission amount received, without availing any exemption threshold limit. The tax shall be charged in the invoices raised against supplier of goods or services; and such suppliers can avail ITC on such GST charged, if otherwise eligible.

Logistic service provider (DSP) will not come under the exempt services under section 9(5) hence they are to be dealt as applicable in GST law however their taxability depends on the threshold limit.

Collection of Tax at Source (TCS) under E commerce:

As per section 52 of the CGST Act 2017, An electronic commerce operator (not being an agent) shall collect the TCS at the rate of 1%(0.5% CGST and 0.5% SGST) as per section-52 on the net value of taxable supplies(other than supplies u/s 9(5))  made through it by other suppliers and consideration of such supplies is to be collected by E.C.O

TCS Registration:

The operators have to get separate TCS collection number (separate from normal registration) from GST portal for collection of tax. So there will be 2 registrations for the operators, 1 will be for TCS collection and 1 will be for filing other normal returns such as GSTR-1, 3B etc

The TCS amount collected shall be paid to govt. On or before 10th of next month. So payment is on monthly basis.

• Monthly returns shall also be required to be filed in FORM GSTR – 8, containing details of the outward supplies of goods/services
• Every e.c.o who collects the TCS shall furnish the annual return containing details of outward supplies of goods/services made through it in form GSTR –9B

Exemption from TCS Registration

E-commerce operators that are required to collect TCS as per section 52 are compulsorily required to get registration in each state from where it made supplies, irrespective of the amount of turnover. In GST law no relaxation is provided to e.c.o in term of registration threshold limit.

As per the GST law, the e-commerce operators are not allowed to get TCS registration in some states/uts, where they do not have any physical presence, and this became a challenge to few taxpayers.

To overcome this challenge, from 01st April 2020 onwards, the e-commerce operators not having a physical presence in any particular state/UT has been allowed to apply for TCS registration based on their registered head office/premises address.

Statutory Provisions under Income Tax Act

• Finance Act, 2020 (FA 2020) inserted a new section 194-O into the Income-tax Act, 1961 (ITA) introducing a withholding tax on e-commerce transactions as from 1 October 2020. Under section 194-O, resident and nonresident e-commerce operators are required to withhold income tax at 1% of the gross amount of sales of goods, or provision of services, or both, exceeding INR 500,000 by an Indian resident selling goods or providing services (including digital products) facilitated through a digital or electronic facility or platform provided by the e-commerce operator
• FA 2020 also inserted section 206C(1H) into the ITA as from 1 October 2020, requiring a seller whose total consideration from the sale of goods exceeded INR 5 million in any previous year to collect tax from the buyer. The tax is imposed as income tax at a rate of 0.1% of the sale consideration exceeding INR 5 million..

With multiple compliances and business models, E commerce throws humongous tests to run the business. Apart from GST and Income Tax Law, the Consumer Protection Act 2019 and E commerce Rules 2020 ensures that running an E commerce business is a challenge by itself!