TAX COMPLIANCES ON E-COMMERCE BUSINESS PLATFORM

[Rajeev Jain]

 TAX COMPLIANCIES ON E-COMMERCE BUSINESS PLATFORM

E-commerce business is one of the positive outcomes of the digitalization of technology, especially in the growth of the economy of the nation. It is true that every story is always having two sides, one is negative and the other one is positive. E-commerce business is the positive side of the Covid-19 pandemic. During covid-19 outbreak, it became an important need and the people got so many business opportunities. Moreover, required essentials could easily be delivered in most of the places. Although, updating the technology in rural area of India is also a very tough task. However, now it’s the need to update ourselves with technology upgradation. This article highlights the taxation compliancies on e-commerce business platform.   

Concept:

E-commerce is the process of selling goods and services over the internet. Customers visit the website or e-commerce business platform or online marketplace and purchase products using electronic payments or in some cases, cash on delivery basis. The merchant ship the goods or provide the services on receiving of order from customer either against the advance payment or on cash on delivery basis.

The e-Commerce Business platform or online market place owned by E-commerce Operator “ECO”, that enables third party sellers / merchant / E-commerce seller “Merchant” to register and sell online products or services or both.

ECO charges a fees such as subscription fee, commissions, shipping fee, listing fee, gift wrap fee, transport fee, weight handling fee, etc. for using their e-commerce business platform or market place from the merchant.

Why this platform is accepting and becoming so popular:

From the seller point of view:

• Third party Seller/ Merchant/ E-Commerce Seller gain access to a large customer base.
• Retailers get an additional channel of sales and reach which was unimaginable for an offline seller, thus, the number of customers and their business have increased significantly.
• Government has also allowed Foreign Direct Investment “FDI” under such model to promote e-commerce market place business model in India.

From the E-commerce Operator point of view:

• Finding new business opportunities, especially for start-up business.

From the customer point of view:

• Customers gain access to multiple sellers and competitive prices for the desired products/Services.

From the Nation point of view:

• More employment, which has the important role for the economy of any country.

In this article we are trying to compile the relevant provisions under the GST Law and Income Tax Act as well, applicable to E- Commerce business platform.

Let’s first understand the provisions from GST Law point of view:

The meaning of E commerce and E commerce operator are defined in Section 2(44) and 2(45) of CGST Act, 2017 respectively are as under:

Section   2(44): Electronic commerce means supply of goods or services or both including digital products over digital or electronic network.

Section 2(45): Electronic commerce operator means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.

Other applicable provisions and compliances applicable to e-Commerce Business platform are as under:

• Section 24 (ix) of CGST Act, 2017: Compulsorily registration by E-commerce portals/Operators.
• Section 52 of the CGST Act 2017: Collection of Tax at Source (TCS) under E-commerce
• Monthly Return in form GSTR-8
• TCS Annual Return in form GSTR –9B

1. GST Registration:-

Section 24 (ix) of the CGST Act, Person supplying through Ecommerce Operators (ECO): “Persons who supply goods or services or both, other than supplies specified u/s 9(5), through such electronic commerce operator who is required to collect tax at source under section 52 of the Act are mandatorily required to be registered under this clause.”

Analysis

• E-commerce portals are required to be compulsorily registered under Section 24(ix) of the CGST Act, without availing any exemption threshold limit.
• If any person is already registered under GST in any other capacity than ECO, then he shall have to apply for registration as ECO separately.
• Every Electronic Operator who is required to collect tax at source under section 52. Hence those ECOs who are not required to collect tax at source under Section 52 shall not be required to take registration if their aggregate turnover in a financial year does not exceed the threshold exemption limit.
• shall be paying GST on commission or fee amount received,
• The tax shall be charged in the invoices raised against supplier of goods or services;
• Such suppliers can avail ITC on such GST charged, if otherwise eligible.

Threshold limit for GST Registration

• Government has specified a threshold limit for all the businesses. A business is liable to register for Goods and Services Tax once such threshold limit is breached. However such limit is not applicable in case of e-Commerce sellers.
• Persons making supplies of services, through an ECO and having aggregate turnover less than twenty lakh in a financial year are EXEMPT to take registration, subject to exception given in Section 9(5) of CGST Act, 2017. 

Section 9 (5) of CGST Act, 2017: The exception given in Section 9 (5) is given as under:

• Supply of Passenger Transportation Services
• Supply of House Keeping Services
• Supply of Accommodation Services
• Restaurant Services (Cloud Kitchen): Supply of restaurant service other than the services supplied by restaurant, eating joints etc. located at specified premises. (This service is added in this section with effect from 1st January 2022 vide N/N 17/2021 dated 18.11.2021)

“Specified premises means premises providing hotel accommodation service having declared tariff of any unit of accommodation above seven thousand five hundred rupees per unit (Rs 7500/- per unit) per day or equivalent.”

NO BENEFIT UNDER COMPOSITION SCHEME

• GST law has explicitly excluded e-commerce businesses from this scheme.

The summarised table of the above provisions are given as under:

Particulars	Supply of Passenger Transportation Services & Restaurant Services	Supply of House Keeping Services	Supply of House Keeping Services	Supply of Goods	Supply of Services
Exemption Applicability of Threshold limit	Not Required	Yes	Yes	No	Yes
Registration mandatory	Not Required	Yes (If Turnover > 20 Lakh)	Yes (If Turnover > 20 Lakh)	Yes	Yes (If Turnover > 20 Lakh)
GST Liability to whom	ECO – RCM	ECO – RCM Supplier – In case supplier is liable to get registered	ECO – RCM Supplier – In case supplier is liable to get registered	Supplier of Goods-Forward Charge Mechanism “FCM”	Supplier of Services - FCM

Note: Logistic service provider (LSP) will not come under the exempt services under section 9(5) hence they are to be dealt as applicable in GST law however their taxability depends on the threshold limit.

2. Collection of Tax at Source (TCS) under E commerce (Applicable w.e.f. 01.10.2018)

As per section 52 of the CGST Act 2017, An electronic commerce operator (not being an agent) shall collect the TCS at the rate of 1% (0.5% CGST and 0.5% SGST) on the net value of taxable supplies (other than supplies u/s 9(5) made through it by other suppliers and consideration of such supplies is to be collected by E.C.O.

TCS Registration:

The operators have to get separate TCS collection number (separate from normal registration) from GST portal for collection of tax. So there will be two registrations for the operators, one will be for TCS collection and other one will be for filing other normal returns such as GSTR-1, GSTR-3B etc.

The TCS amount collected shall be paid to govt. account on or before 10th of next month. So payment is on monthly basis. Monthly returns shall also be required to be filed in FORM GSTR – 8, containing details of the    outward supplies of goods/services. Every ECO who collects the TCS shall furnish the annual return containing details of outward supplies of goods/services made through it in form GSTR –9B.

Exemption from TCS Registration: E-commerce operators that are required to collect TCS as per section 52 are compulsorily required to get registration in each state from where it made supplies, irrespective of the amount of turnover. In GST law no relaxation is provided to ECO in term of registration threshold limit. As per the GST law, the e-commerce operators are not allowed to get TCS registration in such states/UT(s), where they do not have any physical presence, and this became a challenge to few taxpayers.

To overcome this challenge, from 01st April 2020 onwards, the e-commerce operators who do not having a physical presence in any particular state/UT(s) has been allowed to apply for TCS registration based on their registered head office/premises address.

Key Points

• There is no threshold limit in the section, Hence irrespective of amount, ECO is liable to collect TCS @1% in all case.
• The TCS amount have to be deposited it by 10th of next month.
• ECO is liable to collect TCS on net amount hence if there is a sales return then he shall have to collect TCS on net amount.

Understanding with case study or example:

Seller                                       :         Person ‘S’

ECO                                        :         Amazon

Purchaser/Buyer                     :         Person ‘P’

Product                                   :         Shirt

Product price                          :         Rs.500/- plus GST (5%)

ECO Charges/Commission    :         10% of Sale price.

 

‘P’ place an order for purchasing shirt to ‘S’ on e-commerce platform through Amazon for Rs.500/-. The payment of shirt will be made by P to Amazon and S will send the shirt directly to P. Hence there are two transaction one between P and Amazon and second between Amazon and S, although shirt is being delivered directly by S to P.

Key Actionable of above Transaction

1. How much amount to be paid by P to Amazon ?
2. How much amount to be paid by Amazon to S ?
3. What is the amount of TCS to be collected and deposited by Amazon ?
4. What is the GST liability to be paid in cash in the hands of S and Amazon ?

The actionable of all the concerned parties to transaction is as under-

S. No.	Particulars	Amount (Rs.)
1	Sale Price of Shirt	500
2	Add: GST on shirt at the time of supply @5%	25
3	Total Amount Paid by P to Amazon (1+2) {a}	525
4	Commission charged from S by Amazon (10% of Rs.500/-)	50
5	GST Charged on Commission @18% (18% of 50/-)	9
6	TCS Collected by Amazon @1% (1% of 500/) {c}	5
7	Amount Paid back by Amazon to the S (3-4-5-4) {b}	461

GST Liability in the hands of ‘S’

S. No.	Particulars	Amount (Rs.)
1	GST charged on Shirt at the time of Supply	25
2	Less: Input Tax on Commission (GST on commission charged by Amazon)	9
3	Less: Tax (TCS) Already Collected by Amazon	5
4	Net GST liability  (1-2-3){d}	11

Note: Assuming Nil ITC value in the hands of ‘S’, otherwise such ITC will also be deducted from the amount of above net GST liability.

GST and TCS liability in the hands of Amazon:

S. No.	Particulars	Amount (Rs.)
1-	GST liability on Commission	9
2-	TCS to be deposited on or before 10th of next month	5

  Applicability of provisions from Income Tax Act,1961:

The provision applicable to e-commerce business platform as per Income Tax Act 1961 is as under:

Section 194O: TDS on Payments of certain sums by e-Commerce Operator to e-Commerce Participants

(Inserted by Finance Act 2020, Applicable with effect from 01.10.2020)

Section 194O:

• An e-Commerce operator is required to deduct TDS for facilitating any sale of goods or providing services by an e-Commerce participant through its digital or electronic facility or platform. 
• Such e-Commerce operator shall, at the time of credit of the amount of sale or services or both to the account of an e0commerce participant or at the time of payment thereof to such e-commerce participants by any mode, whichever is earlier, deduct TDS at the rate of (one) 1% of the Gross amount..

Explanations:

• "e-commerce operator" means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce;
• "e-commerce participant" means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce;
• "services" includes "fees for technical services" and fees for "professional services", as defined in the Explanation to section 194J.                                          

E-commerce participant being a resident individual or HUF: 

• E-commerce operator is not required to deduct TDS if the gross amount of sale of goods, services, or both during the previous year does not exceed Rs 5 lakh and if the e-Commerce participant has furnished his PAN or Aadhaar.
• If the e-Commerce participant does not furnish his PAN or Aadhaar, TDS must be deducted at the rate of 5%, as per provisions of Section 206AA.
• An e-Commerce participant must be a resident of India. Thus, no TDS will be deducted if the participant is a non-resident.

Example:

A proprietorship concern “ABC” (e-commerce participant) is selling its products through Amazon (e-commerce operator). Mr. X (Customer) buys this product online from ABC for Rs 75,000 on 1^st November 2020.

Amazon credits the account of ABC on 1^st November 2020, but the customer makes the payment directly to ABC on 15^th November 2020.

Here, Amazon is required to deduct TDS @1% on Rs. 75,000 at the time of credit to the party or making payment, whichever is earlier. In this case, TDS should be deducted on 1^st November 2020.