GST on E-commerce in 2022 [Tax Rates, HSN Codes]

Electronic commerce, as the name implies, is the purchase and sale of goods and services or the transmission of funds and data over any electronic network, like the internet.

The Goods and Service Tax (GST) Act, which came into force on 1st July 2017, simplified and consolidated numerous indirect taxes imposed by the State. In the premise where e-commerce websites were fast-growing, GST had a more or less positive impact on this sector. It removed the complicated tax burden issues on sellers and consumers. The sudden growth spurt of sellers and businesses on online marketplaces came to be governed by rules and regulations of the GST Act.

Major changes in e-commerce due to the GST

In Section 43B(d) of the MGL (Model GST Law) – E-commerce is defined as the supply or receipt of goods or services, or both over an electronic network, mainly the internet through the use of any of the internet-based applications, such as but not limited to email, instant messaging, shopping carts, web services, Universal Description Discovery And Integration (UDDI), File Transfer Protocol (FTP), electron, and others.

As per Section 43B(e), to be an Electronic Commerce Operator, you must own, operate, or manage a platform that facilitates the supply of goods or services, or both.

An Operator is any person providing any information or other services incidental to or in connection with the supply of goods and services, or both through an electronic platform. However, a person supplying goods services on his account will not be considered as an Operator.

1. E-commerce exclusion from composite Scheme

Small and medium businesses make up the majority of these sellers registered with marketplace operators. The government has introduced a composite scheme as part of the GST law. For small and medium businesses, the primary goal of this program is to reduce the compliance burden on them. Rather than filing monthly reports, businesses are required to file quarterly reports and pay a nominal tax rate of up to 2 per cent. GST law, on the other hand, specifically excludes e-commerce businesses from this program.

2. Exemption of GST registration

There is a limit set by the government for all companies. An organisation is required to register for Goods and Services Tax once it reaches a certain threshold amount. However, e-commerce sellers are exempt from such a limit. Those with sales of less than Rs. 20 lakh do not need to register as stated in the tax notification No. 65/2017 dated 15th November 2017.

3. Deduction of tax at source by the marketplace operator

As part of the new tax regime, marketplace operators are required to deduct a percentage amount from the seller's GST liability and deposit it with the government. Under the GST law, this mechanism is referred to as "Tax Collection at Source (TCS)". It will eventually be necessary for the marketplace seller to file a monthly GST return for the marketplace operator to claim credit for TCS collected by the seller. As a result, their liquidity and cash flow will be affected. A first-level impact analysis on GST has been carried out by all marketplace operators, but marketplace sellers are still unaware of these rules. The need of the hour is to stay alert. Keeping abreast of upcoming changes is essential. Such sellers should also begin planning their GST transition strategy now.

The tax burden on e-commerce companies

Although the GST unifies several indirect taxes and e-commerce companies won't have to worry about state governments imposing an entry tax on goods sold online or VAT on non-declaration of warehouses, etc., e-commerce companies are concerned about the proposed tax collection.

The unformulated burden of a tax deduction on returned orders

Cash on delivery (COD), returns and cancelled orders will have an impact on the operator's cash flow. In India, the return or cancellation rate is between 15 and 18 per cent, and more than two-thirds of the transactions are COD, with the reconciliation occurring 7 to 15 days after the original transaction. Obtaining refunds for cancelled or returned orders on which tax has already been deducted would be a burden for operators. And the operators will have to manage their accounting and reconciliation by this new requirement as well.

As a result of a cancellation or defect, the goods will be returned, and TCS will be charged, even though the supply did not materialise fully. The operator's compliance costs will undoubtedly rise as the volume of transactions and submissions of various statements increases. If you want to sell goods on the internet, you'll need a way to move them between vendors and warehouses (or vice versa).

Merits and demerits of the GST on e-commerce

While the GST on e-commerce has its virtues, it also has vices. Some advantages after GST implementation are as follows-

• TCS is being handed over to the government instead of GST collection.
• There is a uniform system of pricing for everything. This standardised system benefits the sellers as offline sellers get the same edge to costing and pricing.
• It removes the different tax impositions in different states. E-commerce effectively facilitates that.
• Other overhead costs, logistics, inventory costs, etc., would drastically fall. This requires a lesser number of warehouses.

The problems of GST on the e-commerce  sector are:

• The tax imposition on retail platforms is higher, which is the cause for the discontent of influential retail stores.
• The service sector has to register in every state that they aim to cater to.
• The control on businesses becomes two tiers- one at the state level, the other at the Center.
• States cannot impose their autonomy to change tax rates at will and convenience.
• MSMEs are an issue in this regard. Small businesses face rather inconvenience in the GST network.

Conclusion

Given the ambiguity and prosecution in the present tax regime, GST has been an important point of discussion in recent times. GST is expected to provide relief from the current hurdles. Businesses in the e-commerce sector should pay close attention to the GST because the model GST law includes a tax collection at source (TCS) mechanism.

Also read:

1) GST on Food items
2) GST on works contract
3) GST on  logistics sector
4) GST on IT industry
5) OkCredit: All you need to know about OkCredit & how it works.

Stay updated with new business ideas & business tips with OkCredit blogs in English, Hindi, Malayalam, Marathi & more!
Download OkCredit now & get rid of your bookkeeping hassles.
OkCredit is 100% Made in India.

FAQs

Q. Can an e-commerce business opt for a composition scheme under GST law?

Ans. No, an e-commerce business cannot opt for a composition scheme.

Q. Is GST registration compulsory for all e-commerce companies, irrespective of the sales amount?

Ans. Yes, GST is compulsory for all e-commerce companies, irrespective of the sales amount.

Q.  Can an e-commerce marketplace claim the Input Tax Credit?

Ans. Yes, an e-commerce marketplace, i.e. sellers, can claim the Input Tax Credit.