Drop-shipping is a type of business where the products to be sold are not kept in the store, rather in the drop-shipping model, the products are purchased from the third party and are directly shipped to the customer. As a result, the seller does not have to handle the product directly.
The difference between standard retailing and drop-shipping is that the selling merchant does not stock the inventory, instead, he purchases the products from the third party (wholesaler or manufacturer) to fulfill the orders.
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What is International drop-shipping?
International drop-shipping is where the customers and the suppliers are both based outside of India. For example, the target customers are based in USA and goods are supplied by suppliers based in China.
So, a person in India take orders from the customers who are based outside of India and then passes those orders to suppliers who are also based outside of India. These suppliers fulfill the order and get paid by the person in India.
A. GST Implication on International drop-shipping
I. Is GST registration applicable on International drop-shipping ?
There are two legs of a typical drop-shipping transaction:
- You will receive an order from a customer outside of India, which will be forwarded by you to a supplier outside of India, who will get the product delivered to the customer.
- You are essentially providing customer forwarding/lead generation services to the supplier who is delivering the product to the customer.
For the first leg, since the goods are being delivered from a supplier outside India to a consumer outside India. This is neither an Export from India nor an Import into India and hence this is out of the ambit of GST.
For the second leg, it’s an export of services from a person who is based in India to a person based out of India.
GST law do not require a business to get registered under GST if it is exclusively engaged in export of goods or services. so legally speaking, if you are exclusively engaged in international drop-shipping with no domestic business in India, you aren’t required to register under GST.
However, you could choose to voluntarily get registered under GST, which might be the most feasible way out due to practical reasons owing to requirements one need to run a successful drop-shipping business from India
II. Why Should I take GST registration?
In order to run a drop-shipping business successfully, you would need a GST number, following are the practical reasons:
- You need to run promotional ads on Facebook and other platforms to get customers
- You need to register to an international payment portal like PayPal to receive international payments
Both of the above would require you to have a GST number, without which you won’t be able to operate under these platforms in a long run. Furthermore, these platforms would charge GST from you on the fees charged by them, which would become your cost if you aren’t registered with GST.
So, the two primary reasons, you should register under GST
1. You will require it to operate under these platforms
2. You can get a refund of GST paid by you for using these platforms, as you are engaged in export of services, so this saves a lot of cost.
III. Do you have to pay any GST to the government?
No, since you are exporting services, you won’t charge GST and also won’t be required to pay GST to the government.
IV. Do I have to file GST returns?
Yes, since you are registered with GST, you will be required to file GST returns periodically like a normal GST dealer. Also, it would be required for you to report the GST paid by you to platforms like PayPal & Facebook and other procurements, if any.
V. How would one claim refund of the GST?
The exporters of services can export the goods without payment of IGST, by submitting a LUT and further they can claim the refund of unutilized input credit. Here’s the detailed procedure https://taxguru.in/goods-and-service-tax/claim-refund-input-tax-credit-tax-paid-exports-goods-services.html
B. Income tax implications
Under Income tax, like any other business, this would be taxable as normal business income. It would be taxable under the head Profits & Gains from Business & profession. An ITR reporting the income from drop-shipping will be filed.
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)
Author Bio
please update this info for the current situation in India.
Thank you.
I am also planning to do dropshipping from other country to USA. I am new in this field. I want to ask 1 think that if i sale 20 lac rupees products including profit… All come to my account…. So how government deduct income tax from 20 lac. Will they deduct tax from my profit only or from total money… What is the exact process. Thank you
THE DROP SHIPPING IS COVERED UNDER SCHEDLE III ITEM NO 7 AS AMDNDED BY NF. 2/2019 WEF 1.02.19 SOTRANSACTION DOES NOT INVOLVE ANY SUPPLY OF SERVICE OR GOODS IN MY OPINION ANY OTHER OPINION
Hi, thanks for this great post. I am exactly doing the same. Doing international dropshipping. I have some doubts regarding gst filing. How can I contact you for consultation call.
Thanks
Hi Abhinandan,
Great article, thanks.
My situation is a little different and I can’t find anywhere it has been addressed. Possibly you will have an answer.
I have a makers studio unit in Noida, UP and I design and produce vegan leather backpacks, bags, and accessories.
I would like to produce custom design bags for my customers (artists, designers, fashionpreneurs, and brands) and provide a dropship service to them as well.
I can’t find any information with regards to what taxes I need to charge for this?
I am wondering if the taxes charged are different for the product than they are for the drop shipping service?
Some clarity or direction where I would go to find that information would be greatly appreciated.
Thanks
Enzo
Hi,
I’m doing same international dropshipping.
I understand about GST… Now question is for Payments coming from US to PayPal and then to india bank.
Will there will be any problem in payment, Like government can ask from where the payment is coming from and how.?
While there will be any issue of foreign exchange department of India ?
Can they stop my payment ?
Thanks
HELLO ,
I am Selling Product USA and Purchase from China through store , then How should i show in GST Return Purchase and Sales Figures in GSTR 1 and 3B . And also want to know that Paypal and Google were Charge IGST so can i Claim Refund of the Same in my GST Return filling.
Pls Do Needfull.
Very nicely put Mr Abhinandanjain.
Thanks a lot…
A qurey regarding income tax. So we are making payment to supplier in china from our account and receiving payment from customer in usa to our account. How would income tax be calculated
10 dollar product from china sold in usa for 25 including shipping and all. We make 15 dollar less payment gateway fees 5% appox on 25dollars approx 13.75. Less we have paid on ads and promotion for all our products say 1000 dollars yearly
So all theses costs will this include in profit calculation and how would i file income tax on it. Suppose I sell 100 peoducts in a year 100*13 = 1300 dollar profit minus 1000dollar ads + promotion = 300 usd profit should i pay income tax on 300 dollars as per my tax bracket.
Really appreciate your answer ,i was at the beginning stages and this cleared some of my doubts.
thank you so much.
Suppose, I want to do drop shipping. I am based in India, my customers are within India and the manufacturer is in China, what would be applicable under such circumstance? Also is there any import or excise duty to be paid?
As a customer, once I ordered a product from U.S Amazon, I ended up paying excise duty almost half the price of the product. I dont want that to happen to my customers.
Whether this is applicable to the Services as well, lets say one services is required by the US client and the same is provided by the person in China.
Will not it be considered as import of services by me in India from China and then providing it to US person
Hi, would this be the same scenario if I am buying goods from a Party in Dubai and Selling the same goods with Markup to a Customer in USA. In this case i could ask my Seller in Dubai to Directly ship goods to my Client in USA, but the billing would take place in 2 Legs.
A. I will bill my customer in USA.
B. Dubai Party will bill me for the same goods.
Please let me know if this falls under drop shipping category?