Introduction:
The Indian economy is significantly impacted due to COVID-19 pandemic, which saw one of the largest lockdowns globally. The Indian internet economy, which was one of the most attractive markets worldwide, saw a steep decline in the month of April 2020, crippled by the shutdowns.
However, the pandemic helped to accelerate the growth for segments such as online education, e-commerce, e-healthcare and online payments, as Indian consumers moved online to fulfil their daily needs. So, it is important to understand the various business models of e-commerce businesses.
Background:
In India, e-commerce transactions are governed by various statutes, some of which are-
♦ Income Tax Act, 1961
♦ Consumer Protection Act, 1986
♦ Information Technology Act, 2000
♦ Foreign Exchange Management Act, 2000
♦ Payment and Settlement Systems Act, 2007
♦ Competition Act, 2002
♦ Companies Act, 2013 and
Goods and Services Tax Act, 2017
This module helps you to understand the impact of GST on e-commerce transactions.
Let’s get started!!!
Before diving into the legal aspects, it is important to understand the meaning of the following terminologies.
♦ Commerce: It is an activity of buying and
♦ E-Commerce:
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- In Common parlance, an activity of buying and selling of goods and services over the internet is called E-Commerce.
- However, in terms of Sec 2(44) of CGST Act,2017 “Electronic commerce means supply of goods or services or both, including digital products over digital or electronic network.”
♦ E-Commerce Operator (ECO):
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- In common parlance, the person who operates the E-commerce platform is called an ECO.
- However, in terms of Sec 2(45) of CGST Act,2017 “ECO means any person who owns, operates or manages digital or electronic facility or platform for e-commerce.
To understand the implication of GST on the e-commerce transaction, it is equally important to understand the business models of the E-commerce businesses.
Business Models:
a) Primarily, there are two types of e-commerce business models that exists in India.
♦ Inventory based model of e-commerce.
♦ Market-place based model of e-commerce.
b) Further, Marketplace based model of e-commerce has multiple business models within it. The same is depicted using the chart given below.
c) In this module you would be able to understand the following implications of GST on the aforesaid business models using a case study.
♦ Levy and collection of tax
♦ Registration
♦ Invoicing
♦ Input Tax Credit
♦ Returns
♦ Tax Collection at Source (TCS)
♦ E-Way bill
d) However, the levy provisions under GST classifies the Market place e-commerce business model again into two types. The same is depicted as follows;
Now let us try to understand the implications of GST on e-commerce transactions having the following business models with a case study;
♦ Inventory based E-commerce business model
♦ Marketplace based E-commerce business model, where only specified services are provided through ECO.
♦ Marketplace based E-commerce business model, where goods and other than specified services are provided through ECO.
Inventory based E-commerce business model:
As discussed in the above paras, in this model the inventory of goods and services is owned by the E-commerce entity. The entity will list its own products in its own website and the consumers explore the website and place orders on the website itself. Later, the products are delivered to the addresses of consumers. The GST impact analysis is tabulated in the subsequent paragraphs.
Case study:
Lens Kart
♦ Business:
- Lens Kart is the seller of lenses, frames, contact lenses. It would purchase the same from the manufacturers and stores the same in its own warehouse and on the orders placed by customers in the website, it would deliver.
- Apart from that it has a franchisee model, where it would sell the above products in the offline stores directly (Not e-commerce)
♦ Parties involved: Lens Kart and Buyers.
♦ Therefore, Lens Kart need not take TCS registration and is required to file monthly returns GSTR-1, GSTR-3B, Annual returns (GSTR-9) and Re-conciliation statement (GSTR-9C) by taking a Regular registration under GST.
♦ Lens Kart shall generate the E-way bill. However, the courier agency may on the authorization from Lens Kart generate e-way bill while delivering the goods to customers.
Marketplace based E-commerce model- Specified services only:
In this model, only service providers will provide the specified services through E-commerce operator to the end customers.
Let’s, try to understand the services specified under Sec 9(5) of CGST Act,2017.
♦ Specified services:
In terms of Notification 17/2017-CT(R) dated 28th June 2017 and Notification 23/2017-CT(R) dated 22nd August 2017 the following services are specified;
a) services by way of transportation of passengers by a radio-taxi, motor cab, maxi cab and motor cycle; –
Example: Ola, Uber
b) services by way of providing accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, except where the person supplying such service through e-commerce operator is liable for registration under Section 22(1) of CGST Act.
Example: OYO hotels.
c) services by way of house-keeping, such as plumbing, carpentering etc, except where the person supplying such service through e-commerce operator is liable for registration under section 22(1) of the CGST Act.
Example: Urban Company
♦ Case study: Urban Clap (“Urban Company”)
♦ Business:
- Urban Company’s business model revolves around connecting Service seekers with the service providers.
- It is an online platform that helps people to find the right professionals for their home-related daily services.
- These services include educational tutors, plumbers, beauticians, lawyers, photographers, electricians, and much more.
- They are providing the House keeping services (specified under Sec 9(5) of CGST Act,2017) and other services also.
- There are two payment options online or cash on delivery.
♦ Parties involved: Service providers, Urban company (ECO), Service seekers.
Summary:
√ Therefore, to the extent of housekeeping services provided by Urban Company, they are not required to deduct the TCS on the payments collected by them on behalf of the suppliers of service.
√ However, with respect to the services (other than that specified under Sec 9(5) of CGST Act,2017) i.e., gym training, saloon etc. – Urban company is required to deduct the TCS on the payments collected by them on behalf of the supplier of service and liable to take TCS registration and file GSTR-8 by 10th of the following month for every tax period.
Marketplace based E-commerce model-Goods and Other than specified services:
In this model, the ECO will facilitate the supply of goods and other than specified services between the suppliers and the buyers. The ECO will not have any title over the goods or services transacted through its platform.
Let’s try to understand the various GST implication on the same;
♦ Business to Business Model {B2B}
♦ Case study: Udaan
♦ Business:
- Udaan is a online market place where all the sellers list their products and supply to the end customers, who are basically registered under GST.
- Udaan would deduct the Commission for the services rendered.
♦ Parties involved: Udaan, Sellers, Buyers.
Summary:
Udaan (i.e., ECO) is liable to take Regular GST registration as well as TCS registration. It is required to deduct the TCS while remitting the consideration paid to the sellers of goods or services.
ILLUSTRATION:
Taxable value of goods sold to customer = 1,00,000
GST on the goods = 18,000
Total amount received from customer = 1,18,000
Commission to Udaan @ 5% = (5,000)
GST on commission @18% = (900)
TCS @ 1% (1,00,000) = (1,000)
Amount payable to vendor = 1,11,100
| Registration:
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In terms of Sec 22 of CGST Act,2017- every supplier shall be liable to be registered under this act in the state or UT from where he makes a taxable supply of goods or services or both, if his aggregate turnover exceeds a specified threshold limit.
The threshold limit for registration varies from state to state. The terms aggregate turnover is defined under Sec 2(6) of CGST Act,2017. To sum up, if the aggregate turnover of the e-commerce entity exceeds a specified threshold limit in a state, then such entity is liable to take GST registration. (Usually Regular Scheme)
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In terms of Sec 24(iv) of CGST Act,2017- a person who is required to pay tax under Sec 9(5) of CGST Act is liable to take registration.
In the instant case, the E-commerce operators are required to take GST registration (Regular), irrespective of the aggregate turnover (i.e., Sec 22 of CGST Act,2017). The suppliers of such services shall take GST registration if their aggregate turnover exceeds 20 lakhs (10 lakhs in special category states- Nagaland, Mizoram, Tripura, Manipur).
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· ECO: In terms of Sec 24(x) of CGST Act,2017 shall take a GST registration mandatorily whether or not its aggregate turnover exceeds the specified threshold limit. (Irrespective of Sec 22(1) of CGST Act,2017)
· At the same time, if the ECO is required to deduct the TCS, then he is mandatorily required to take TCS registration under Sec 24(vi) of CGST Act,2017- “persons who are required to deduct tax under section 51, whether or not separately registered under this Act;” Suppliers: At the same time, in terms of Sec 24(ix) of CGST Act,2017- 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 mandatorily required to take GST registration irrespective of whether the aggregate turnover is exceeding the threshold limit. However, in terms of Notification 65/2017 dated 15th Novemeber,2017- an exemption from taking GST registration is provided under Sec 23 to the such service providers, if their aggregate turnover do not exceed 20 lakhs (10 lakhs in case of special category states). This exemption is only for the service providers and not for the supplier of goods. |
| v Levy and Collection of tax:
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In terms of Sec 9(1) of CGST Act,2017 and Sec 5(1) of IGST Act,2017 – the tax shall be levied on the supply of goods or services on all intra-state and inter-state supplies on the value determined under Sec 15 and shall be paid by the taxable person.
Therefore, the E-commerce entity shall pay the taxes to the Government.
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In terms of Sec 9(5) of CGST Act,2017 – “The Government may, on the recommendations of the council, by notification specify the categories of services the tax on the intra-state supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services.”
Meaning thereby, if the specified services are supplied by any supplier through the E-commerce platform, then the E-commerce operator is liable to pay GST on the same as if he is the supplier of the service. Therefore, it is not the supplier of specified service is liable to pay tax but it is the E-commerce operator through which such services are provided is liable to pay taxes. |
In terms of Sec 9(1) of CGST Act,2017 and Sec 5(1) of IGST Act,2017 – the tax shall be levied on the supply of goods or services on all intra-state and inter-state supplies on the value determined under Sec 15 and shall be paid by the taxable person.
· In the instant case, the suppliers are liable to pay the GST by collecting the same from the end customer, for the goods or other than specified services provided by it using the e-commerce platform. At the same time, for the services provided by ECO to the suppliers, ECO shall pay taxes to the Govt by collecting from its sellers.
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| Returns:
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The E-commerce entity which has taken the GST registration under the Regular scheme shall file GSTR-1 and GSTR-3B monthly.
However, if such e-commerce entity opts to file returns under Quarterly Return and Monthly Payment Scheme (QRMP), it can file GSTR-1 and GSTR-3B quarterly and pay taxes monthly by generating challans. (Provided, if such entity is eligible for QRMP scheme) If the turnover of the entity exceeds 5 crores then it is required to file Annual return (GSTR-9) and Re-conciliation statement (GSTR-9C). If the turnover of the entity does not exceed 5 crores, but exceeds 2 crores, then only Annual return (GSTR-9) shall be filed. If the turnover of the entity is up to 2 crores, then both Annual return and Re-conciliation statement is not required. |
The E-commerce entity which has taken the GST registration under the Regular scheme shall file GSTR-1 and GSTR-3B monthly.
However, if such e-commerce entity opts to file returns under Quarterly Return and Monthly Payment Scheme (QRMP), it can file GSTR-1 and GSTR-3B quarterly and pay taxes monthly by generating challans. (Provided, if such entity is eligible for QRMP scheme) If the turnover of the entity exceeds 5 crores then it is required to file Annual return (GSTR-9) and Re-conciliation statement (GSTR-9C). If the turnover of the entity does not exceed 5 crores, but exceeds 2 crores, then only Annual return (GSTR-9) shall be filed. If the turnover of the entity is up to 2 crores, then both Annual return and Re-conciliation statement is not required. |
The E-commerce entity which has taken the GST registration under the Regular scheme shall file GSTR-1 and GSTR-3B monthly along with it, it shall file GSTR-8 if it has taken the TCS Registration.
· However, the suppliers can file GSTR-1 and GSTR-3B along with GSTR-7A to accept the TCS credit collected by ECO. If the turnover of the ECO/Suppliers exceeds 5 crores then it is required to file Annual return (GSTR-9) and Re-conciliation statement (GSTR-9C). If the turnover of the ECO/ Suppliers does not exceed 5 crores, but exceeds 2 crores, then only Annual return (GSTR-9) shall be filed. If the turnover of the ECO/Suppliers is up to 2 crores, then both Annual return and Re-conciliation statement is not required. |
| Invoicing:
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In case of Goods: In terms of Sec 31(1) of CGST Act,2017 – A registered person supplying taxable goods shall before or at the time of removal of goods for supply to recipient shall issue a tax invoice, where the supply involves the movement of goods.
In all other cases, at the time of delivery of goods to the recipient the tax invoice shall be issued. In case of services: In terms of Sec 31(2) of CGST Act,2017 read with Rule 47 of CGST Rules,2017- A registered person supplying taxable services shall, before or after the provisions of service but within a period of 30 days from the date of supply of service (45 days in case of Banking, FI, NBFC) shall issue a tax invoice. Therefore, the E-commerce entity shall issue the tax invoice for the supply of goods or services to the end consumer in terms of the aforesaid deadlines. |
In terms of Sec 31(2) of CGST Act,2017 read with Rule 47 of CGST Rules,2017- A registered person supplying taxable services shall, before or after the provisions of service but within a period of 30 days from the date of supply of service (45 days in case of Banking, FI, NBFC) shall issue a tax invoice.
Therefore, the E-commerce entity shall issue the tax invoice for the supply of services made by the service provider to the end customers through the ECO in terms of the aforesaid deadline.
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In case of Goods: In terms of Sec 31(1) of CGST Act,2017 – A registered person supplying taxable goods shall before or at the time of removal of goods for supply to recipient shall issue a tax invoice, where the supply involves the movement of goods.
In all other cases, at the time of delivery of goods to the recipient the tax invoice shall be issued. In case of services: In terms of Sec 31(2) of CGST Act,2017 read with Rule 47 of CGST Rules,2017- A registered person supplying taxable services shall, before or after the provisions of service but within a period of 30 days from the date of supply of service (45 days in case of Banking, FI, NBFC) shall issue a tax invoice. Therefore, the suppliers shall issue the tax invoice for the supply of goods or services made through the ECO to the end consumer in terms of the aforesaid deadlines. · At the same time, ECO shall issue invoice for the facilitation services provided to the suppliers.
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| E-way bill:
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In terms of Rule 138 of CGST Rules,2017- Every registered person who causes movement of goods,
(i) in relation to supply; or (ii) for reasons other than supply; or (iii) due to inward supply from an unregistered person, of consignment value exceeding 50,000 rupees shall generate an e-way bill in the E-way bill portal before commencement of such movement. However, if such goods are supplied through a courier agency, then the supplier (i.e., Consignor) shall authorise the courier agency to generate the e-way bill. · The movement of goods shall be accompanied by Tax invoice and E-way bill.
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Discussion on the E-way bill is not relevant, as only the specified services are provided by the supplier of service through the ECO to the end customers.
E-way bill is not required to be generated in case of supply of services.
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In terms of Rule 138 of CGST Rules,2017- Every registered person who causes movement of goods,
(i) in relation to supply; or (ii) for reasons other than supply; or (iii) due to inward supply from an unregistered person, of consignment value exceeding 50,000 rupees shall generate an e-way bill in the E-way bill portal before commencement of such movement. However, if such goods are supplied through an ECO/ courier agency, then the supplier (i.e., Consignor) shall authorise the ECO/ courier agency to generate the e-way bill. · The movement of goods shall be accompanied by Tax invoice and E-way bill.
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| Input Tax credit:
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The e-commerce entity can take credit if all the conditions as required under Sec 16 is satisfied.
The entity shall have tax invoice. The entity must have received the goods / services. The supplier to the entity must have paid taxes to the Govt. The entity shall furnish GSTR-3B. The goods/services, so procured by the entity shall be used in the course or furtherance of business. |
The e-commerce entity can take credit if all the conditions as required under Sec 16 is satisfied.
The entity shall have tax invoice. The entity must have received the goods / services. The supplier to the entity must have paid taxes to the Govt. The entity shall furnish GSTR-3B. The goods/services, so procured by the entity shall be used in the course or furtherance of business. |
The e-commerce entity and supplier can take credit if all the conditions as required under Sec 16 is satisfied.
The ECO/Sellers shall have tax invoice. The ECO/Sellers must have received the goods / services. The ECO/Sellers to the entity must have paid taxes to the Govt. The ECO/Sellers shall furnish GSTR-3B. The goods/services, so procured by the ECO/Seller shall be used in the course or furtherance of business. |
| Tax Collection at source: | In terms of Sec 52 of CGST Act,2017 – Every ECO shall collect an amount calculated @ 1% (0.5% CGST + 0.5% SGST or 1% IGST) of the net value of taxable supplies made through it by the other suppliers where the consideration with respect to such supplies is to be calculated by the operator.
In this model, as the E-commerce entity is supplying its own products using its own platform, it is not required to deduct the TCS. Therefore, the provisions of TCS will not apply and the entity need not take TCS registration. |
In terms of Sec 52 of CGST Act,2017 – Every ECO shall collect an amount calculated @ 1% (0.5% CGST + 0.5% SGST or 1% IGST) of the net value of taxable supplies made through it by the other suppliers where the consideration with respect to such supplies is to be calculated by the operator.
However, in terms of Explanation given under Sec 52 provides that the net value of taxable supplies of services do not include the value of services supplied by the supplier through ECO as notified under Sec 9(5) of CGST Act,2017. Therefore, in this model the ECO need not take TCS registration under GST and need not collect the TCS from the consideration that is received from the consumers on behalf of the supplier, while remitting the same to the supplier of specified service. |
In terms of Sec 52 of CGST Act,2017 – Every ECO shall collect an amount calculated @ 1% (0.5% CGST + 0.5% SGST or 1% IGST) of the net value of taxable supplies made through it by the other suppliers where the consideration with respect to such supplies is to be calculated by the operator.
In this model, as the suppliers are supplying the goods or other than the specified services through ECO. ECO shall collect the TCS on the consideration payable to sellers. The TCS so collected would be reflecting in the Electronic cash ledger of the supplier on furnishing of requisite returns by both the parties. |
Author Bio
It is such a good article. Got clear understanding of every provision relating to e commerce. Its the first article that has such an in depth analysis. Well done!!
Dear Jaya Kumari,
Thank you for reading the complete article and sharing your kind words and feedback.
Thank you for such a detailed information. Very useful in clearing concepts of different types of ECOs and understanding the tax aspects pertaining to the respective cases.
Dear Nitin,
Thank you for reading the complete article and sharing your kind words and feedback.
What are the GST compliances for a thrift store where we only provide a platform to buy and sell the preloved stuff ,charge uploading charges from the uploader(only the households) and bank handling charges plus shipping charges and nothing else.
GOT A CLEAR IDEA HOW ECO OPERATES
However, e-commerce operators supplying goods or services after purchasing inventory of goods or services from the supplier will be liable to deduct TCS under Sec 52. I don’t agree with the views expressed in the article.
Dear Sir,
Thank you for reading the article and sharing your views.
However, I beg to differ from the view expressed by you.
I request your kind attention to the terminology used in Sec 52 of CGST Act, 2017, ”taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator.”
Meaning thereby, TCS would be applicable only when ECO collects the consideration and facilitates the supply of goods or services on behalf of the actual supplier.
If the goods are already owned by ECO, then they are not collecting the payments on behalf of third parties, they are collecting for themselves. It becomes a normal transaction and no requirement of TCS.
For clarification reach out to author @ sreenivasuluthulasiram2000@gmail.com
Very Good Article
Very nicely written.