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GST For Ecommerce: What It Means

Goods and Services Tax GST


The Goods and Services Tax is soon going to be a reality in India. While the Government is still finalizing the rate and fleshing out the details, here is a look at what GST means for ecommerce, one of the biggest startup sectors. The Draft Bill talks about two key players:

  • Aggregator: owner and manager of an electronic platform, who enables a customer to connect with service providers providing service of a particular kind under the brand name/trade name of the aggregator using the application and an electronic device. The best example of an aggregator would be an app-based service like Ola or Uber, where the service providers (cab drivers) use Ola/Uber brand name.
  • Electronic Commerce Operator: direct or indirect owner, who operates or manages an electronic platform used for facilitating the supply of any goods/services or in providing any information or other services in in relation to this. It will not include persons engaged in supply of such goods and/or services on their own behalf. Classic examples would be operators like Amazon, Flipkart, Urbanclap and so on. This definition does not include the retailers, who sell products/services on these platforms.

A major shift for both the ecommerce operators and retailers is going to be the tax collection at source. Under the present system, VAT (intrastate) or CST (interstate) is paid in the state of origin. It is the seller’s responsibility to charge the tax in the sales invoice and pay it to the Government. In an ecommerce transaction, a customer pays to the marketplace and the marketplace pays to the retailer after deducting an agreed percentage. The retailer then pays the tax out of these proceeds. That is set to change. In the GST regime, the marketplace will be responsible for collecting the tax component on behalf of the retailer. Effectively, the seller will get only net proceeds and the burden of compliance will fall on the marketplace. The provision has not gone down well with the operators.

On the other side, small sellers may need to make some adjustments in their working capital management. This is because the current system provides for monthly/quarterly payments of taxes. For example, total tax related to the sales made in the month of May can be paid by June 21st under the Maharashtra VAT Act. Therefore, a seller can defer the tax payment to the Government up to the prescribed deadlines. However, under the GST system, these temporary funds will not be available. The sellers who depend upon this cash for their operating needs will need to make alternative arrangements. They will be able to claim credit for the tax collected at source by the ecommerce operator. The operator will furnish a statement of tax collected from each seller. This information will be cross checked with the periodic return filed by the seller. While the at-source tax collection may appear onerous, it is designed to control tax evasion and instill transparency in the system.Any services provided by an aggregator under their own brand name or trade name will be deemed as their services. In this way the aggregator will be liable to charge and pay tax to the Government and meet the compliance requirements. All ecommerce operators and aggregators will mandatorily be required a GST registration without any threshold. A limit of INR 9 lakhs is prescribed for other types of GST assessees. The new tax rate and administrative details are yet to be finalized.

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