With the emergence of SOCIAL MEDIA not only the world has become a small global village but also people have turned their hobbies into business. Since social media is a large platform where people interact on daily basis which has not only increased the network of a person but has also given wider stage for business activities.
Many people have started promoting their products on social media. Infact work from home has also taken a jump. Hobbies like baking, handmade eatables, personalized gifts (including cards, scrapbooks, flower jewellery, handpainted items etc), beauty advices, cooking advices, health and fitness advices, other consultancy services have become source of income for many. Growing economy in different aspect sounds lucrative but what about taxes? Unknowingly or knowingly people ignore taxes. This article decodes different types of taxes applicable for the supply of goods and/or services by a person through social media.
INDIRECT TAX
GST– Yes, different supplies of goods or services might attract GST. For obtaining registration one need not to have a commercial property, it can be the address of the residence also.
- As per section 24 of CGST Act, every electronic operator who is required to collect tax at source under section 52 ;(CGST (amendment) Act, 2018 w.e.f. 01/02/2019) is required to get compulsory GST registration. The definition of electronic commerce operator under section 2(45) of CGST Act is wide enough to cover every digital platform. Therefore any social media which falls under such definition requires to get registered under such Act. And this has nothing to do with the supplier supplying through such social media until they fall in the definition of e-commerce operator. Therefore, no compulsory registration for suppliers under this section.
- Now suppose a person is selling product through his own website then also he/ she is not covered in this section, they are also exempt from registration .
For example, Mr. A is selling handmade cards through his own website then he is not bound to get himself compulsorily registered under GST.
- Persons who supply goods or services or both, other than supplies specified under section 9(5), through such e-commerce operator who is required to collect tax at source under section 52 has to get compulsorily registration under GST; (Exemption- Person who are supplier of services and supplying services through e-commerce operator are not required to register under GST if their aggregate turnover is less than Rs.20 lakhs p.a. (Rs.10 lakhs in case of specified States)- Notification No. 65/2017-CT dated 15/11/2017);
In case of suppliers over social media they directly contact the buyer and collect payments directly without having social media as mediator in all this respect except for the fact that seller is introduced with the buyer on such social media. Hence there is no deduction of TCS by social media therefore such supplier does not fall in this category as well for compulsory GST registration. Now such supplier will follow the criteria covered in section 22 and section 23 of the Act which is otherwise applicable for all suppliers.
- INTER-STATE SUPPLIES-Here comes a twist which many a times supplier neglect e. if they sell their taxable goods inter-state then they will have to get compulsory registration under GST irrespective of their turnover. If supplier is of taxable services inter-state then Central Government has granted exemption from registration to person making interstate supplies of taxable services having aggregate turnover not exceeding Rs.20 lakhs/ Rs. 10 lakhs as the case may be (Notification No. 10/2017-IT dated 13/10/2017 w.e.f. 13/10/2017).
- Persons supplying handicraft goods inter-state (notified under Notification No. 21/2018 CT dated 26/07/2018) are exempt from registration if aggregate turnover does not exceed Rs. 20 lakhs/RS. 10 lakhs as the case may be and such persons have obtained a PAN and generated e-way bill. (Notification No. 3/2018-IT dated 22/10/2018)
- Person supplying taxable notified products inter-state , when 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. 20lakhs/RS. 10lakhs as the case may be and such persons have obtained a PAN and have generated e-way bill. (Notification No. 3/2018-IT dated 22/10/2018 w.e.f. 22/10/2018)
- Job workers with aggregate turnover does not exceed Rs. 20 lakhs/RS. 10 lakhs as the case may be even if he makes inter-state supplies to registered person are exempt from registration (except for jewellery, goldsmith and silversmith wares and other articles manufactured on job work basis- (Notification No. 7/2017-IT dated 14/9/2017).
For example, Mr. A sold handmade paper mache non electric bell hanging to a person of another state worth Rs.10000/- since he sold a good is he liable to get registration under GST? No, he is not liable as the good is eligible for exemption stated above subject to threshold limit for the year taken into account
For example, Mr. A owns a small readymade garment shop in a small town but he is very active on social media promoting his product, seeing one of his dress Mr. B of another state placed an order of Rs.5000 with him. Is Mr. A liable to get GST registration if he accepts the order? Yes, Mr. A is liable to get GST registration as the item is neither handicraft nor notified product and sale is inter-state and as per above notification he is not covered under such notification.
For example, Mr. B of Bombay places an order with Mr. A of Rajasthan for delivery of leather purses and leather flip-flops total worth of Rs. 200000/- which are very famous craftsmen’s work in Rajasthan. Since these are notified goods and does not exceed threshold limit, Mr. A is not liable for compulsory registration under GST.
- Agent– When a person is acting as an agent as defined under section 2(5) of CGST Act then he has to compulsorily get himself registered under GST irrespective of his turnover as per section 24(vii) of CGST Act. This is the most ignored aspect. Many people have tied up with wholesalers and retailers for selling their product to consumers by promoting it on social media. But if they fall under this definition of agent then they have to get compulsory registration under GST.
For example, Mr. A is appointed by a artificial jewellery shop owner to sell his product on percentage basis of the turnover. Mr. A puts pictures of the jewellery on his social media account and attracts buyers. Mr. A’s job is to only get buyers to the jewellery shop. Payment and billing is done directly by the jewellery shop owner to the customer and Mr. A is only procurement agent and hence not covered in section 2(5) of CGST Act.
For example, Mr. A is agent of Mr. B for selling his artificial jewellery. Mr. A puts pictures of the jewellery on his social media account and attracts buyers. Here Mr. A takes the delivery from Mr. B and sells it to end consumer under his name. Mr. A bills the consumer under himself and collect the payment from consumer then Mr. A is covered under section 2(5) of CGST Act.
- Courier services – Supplier of goods send their goods via courier and they fear of falling under compulsory registration on the basis of RCM applicability in case of GTA. Here is a brief to this confusion as well. Services by way of transportation of goods by road (except the services of GTA (Goods Transportation Agency); a courier agency) or by inland waterways are exempt (Entry 18 of Notification No. 12/2017-CT (Rate)). GTA services to unregistered person is also exempt (( Notification no. 32/2017- Central Tax (Rate) dated 13/10/2017). Hence no RCM no registration. This notification on 31/12/2018 was however cancelled and RCM has to be paid on unregistered purchase on list which is yet to be notified).
- Export of goods and services- Section 2(5) and section 2(6) of IGST Act, 2017 defines export goods and services respectively. Export is treated as inter-state supply in the course of GST. By any chance supplier of India comes in contact with a buyer who is located outside India(recipient) , place of supply is outside India, payment for such has been received in convertible foreign exchange and supplier and recipient are not merely establishments of a distinct person then such supply will be regarded as export. Exports are zero rated but eligible for input tax credits. Exporter can claim refund under following situation:
1. He may export the goods upon payment of IGST and claim refund of such tax paid or
2. He may export under a Letter of Undertaking, without payment of IGST and claim refund. Refund is not eligible if goods exported are subjected to export duty or if the supplier avails of drawback in respect of central tax.
Thus, supplier of goods or services covered under export have to get themselves registered under GST only if supplier is of taxable services then Central Government has granted exemption from registration to person making such supplies of taxable services having aggregate turnover not exceeding Rs.20 lakhs/ Rs. 10 lakhs in special category states.
- Online Information Database Access and Retrieval Services (OIDAR)– If any services fall under section 2(17) of IGST Act,2017 then such suppliers of services are required to pay IGST and get themselves compulsorily registered under GST. The inclusive part of the definition of OIDAR services are only indicative not exhaustive. To determine if a particular service is an OIDAR, following two conditions must fulfill:
1. Whether provisions of service mediated by information technology over the internet or an electronic network.
2. Whether it is automated and impossible to ensure in the absence of information technology.
- Non OIDAR services ( which are often confused with OIDAR and such services are provided usually through social media) are:
– Supplies of goods, where order is taken online
– Online advisory services through emails -Teaching where the content is provided over the internet
– Booking services or tickets etc.
- Consequences of non registration under GST
– No ITC will be available for the purchase of material used in making of the final product (GST paid on items used to bake cake, sheets, coloring items, fancy items used for making personalized gifts etc)
– Supply of goods will be limited to intra-state and services also subject to the conditions mentioned earlier.
– Difficulty in registering to the business columns over social media without GSTIN. As nowadays social medias have business groups and pages.
DIRECT TAX
When you turn your hobby into business it’s no more far away from the eyes of Income tax. Yes you heard that right. Income earned from such sales is chargeable to income tax after deducting expenses related to the same. Expenses can be anything used in the process while making final product like Raw material, Internet expenditure, Phone recharges, Electricity expenses, Conveyance expenses (home delivery), Depreciation on the related assets like phone, printer, computer, cooking appliances etc.
For example, Mr. A bakes cake and sells it from home. The price of the cake is 700. The material used in batter is of Rs.200 and delivering it costs Rs.50 then the income from such sale is Rs.450 which is chargeable to tax. From such amount he can also claim depreciation on mixers or blenders, refrigerators used in his business.
Such incomes are usually charged under the head Profit and Gain from Business and Professions. If any income is in the nature of salary then show such income in salary heads (Form 16). At last if income earned does not fall under above it falls under Income from Other Sources.
Such persons are not deprived of taking benefits of deduction under Chapter VI on their investment. Just like every other assessee such income earners can claim deductions, carry forward losses, claim income tax refund etc subject to respective conditions.
| Particulars | Rs. |
| Income | xx |
| Expenses | (xx) |
| Net Income | xx |
| Deductions under Chapter VI | (xx) |
| Taxable Income | xx |
Following provisions or compliances are applicable to such suppliers in the same way as otherwise applicable to every other assessee
1. Provisions of TDS and TCS are applicable to such supplier as defined in the Income Tax Act without any modifications or special exemptions.
2. Income Tax Return filing applicability.
3. Maintenance of books of accounts (section 44AA and rule 6F) and tax audit (section 44AB).
4. Alternate Minimum Tax, Clubbing of Income provisions.
5. Advance Tax as per section 208.
6. Any other provisions as otherwise applicable.
Equalisation levy– Sum received or receivable by NR who does not have PE in India for the specified services by a resident carrying on business or profession or NR having PE in India then 6% of amount shall be deductible from consideration paid or payable for specified services if the aggregate consideration exceeds Rs.1 lakhs. Specified services such as Online advertisements, provisions for digital advertising space or any other facility or service for online advertisements or any other service notified by the government.
For example, If a cake selling person from home advertises its cake say via facebook then he will be liable to pay 6% EL subject to conditions.
Disclaimer: The contents of this article are for information purposes only and does not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
Author Bio
Brilliant Article! Helped a lot in clearing off my doubts related to online business!