Legal requirements for selling goods or services through social media platforms like Instagram, Facebook, YouTube etc.
We all have presence in social media. It keeps us connected and makes us approachable. One of the most important & emerging area in Social media would certainly be selling goods or services through Social media networks like Facebook, Instagram, LinkedIn, YouTube etc.
While most of us are aware of how to sell the goods & services through these social networks, many of us do not think about the legal requirements one need to fulfill for effecting sale of goods & services via these networks.
In this article, I would discuss upon the legal requirements for running your business through these networks without any hassle. It is always better to be legally compliant than to not comply & later on end up facing consequences for non-compliance.
I.Registration of business entity
A business conducted through social media can be done as a proprietor or could take other business forms such as a company or a partnership firm. As a proprietary business, it would be suggested to get the business registered as a MSME & evaluate whether you are required to register under GST, which is explained below.
II. Requirement of GST registration
Since you are selling through social media networks, there isn’t really any regulator to ensure the requirements for effecting sales through these networks. Having said that, you are essentially making sales like any other business, which brings us to the most important question:
Do you need GST registration for selling goods or services through social media?
Let’s look at the requirement- GST law requires every business to take the GST registration if they are engaged in making taxable supply of goods or services. Further, it provides a threshold annual turnover exemption of Rs 40 lakhs/20 lakhs*.
*40 lakhs for Supply of goods/ 20 lakhs for supply of services
The above turnover exemption does not apply to a business, if they are making interstate supplies. Now, it would be pretty practical to say that a business running on Social media network would be selling all over the country or even outside the country. So, GST registration is required by all the people selling their goods through their social media networks.
Some relief on GST registration requirement
1. Those persons who are engaged exclusively in the supply of services, do not require GST registration even if they are providing services outside of the state. This exemption is provided only to those persons, who are just providing services & sell no goods to their customers whatsoever.
2. Person selling notified goods made by the craftsmen mainly by hand even though some machinery may also be used in the process are exempt from registration if aggregate turnover does not exceed Rs. 20 lakhs even if they engage in interstate supply, provided such persons have obtained a PAN and have generated e-way bill.
So, it can be concluded that except for the above 2 cases, GST registration is required by every person selling through social media networks.
III. Compliance requirement after getting the GST registration
Once a business is registered with GST, it needs to comply with the filing requirements under the GST law. So, you would also be required to comply with these requirements & file the applicable periodic returns. Currently, a registered person is required to file monthly/quarterly returns depending upon the turnover.
The GST return filing essentially requires the business to have a record of Sales & Purchase transaction made by the business. Since, a business running through social media account do not mostly have an automated database which could provide these information for meeting the filing requirements. One needs to place a recording mechanism in order to record the business transactions so as to make the data accessible to file the applicable returns accurately & in time.
Without filing the returns, one would could not take the input tax credit of the GST paid by them while procuring goods & services, consequently GST paid by you becomes your cost & you end up making lesser profits.
IV. Filing & reporting your income in the ITR
Any person earning income above Rs 2.5 lakhs in a year is required to file ITR. Same applies for the sellers on social media accounts. They are essentially engaged in a business & thus they are legally obliged to account their revenue & expenses, compute their income and taxes to finally pay & report the same by filing the ITR. This requirement is to be met by the businesses operating on social media, just like any other business conducting their business, either through physical shops or through e-commerce platforms.
V. Preparing & managing the records
Not only that various tax laws requires a person to keep business records for 6-10 years. For a business, running via social media networks, would be even more important to prepare & maintain the business records. You also might agree that the businesses running on the social media platforms, do not really record, preserve & maintain their books. Doing so, could land them into trouble not just legally but also otherwise as they would not really where is their business heading in numbers.
Moreover, how would such business comply with the filing requirements without having the transactions recorded & accounted in the first place. Thus, it is pertinent to prepare, manage & preserve the accounting records.
With the emerging growth of business in these platforms, the compliance requirement is a must as the regulatory authorities have already started gauging such platforms as evident by the strict consumer protection rules under the Consumer protection (E-commerce) rules 2020 and several changes in income tax & GST laws have also already been made to ensure the compliance of business running through online media.
Disclaimer: The above post is only for the purpose of academic discussion and should not be construed as any legal opinion in any matter whatsoever.
(The author is a CA in practice at Delhi and can be contacted at: E-mail: [email protected], Mobile: +91-9811741451)