Tax Considerations for E-commerce Business Owners

E-Commerce has grown tremendously in India as more Indians are buying and selling items online. In fact, India’s potential for domestic e-commerce has only flourished in COVID times. This has led several technology giants to reinvent their operations. If we talk about the taxes for eCommerce business, under earlier tax laws, there was not a very clear treatment under some tax laws for online sales. The new GST laws have proper rules in place for e-commerce portals. Prior to commencing business as an eCommerce operator, all eCommerce operators are required to be registered under GST.

As per the GST law, E-commerce aggregators are responsible for collecting and depositing tax at the rate of 1% from each transaction. However, Finance Minister Nirmala Sitharaman has introduced certain changes in CGST Act, 2017 & IGST Act, 2017 to restrain input credit frauds and safeguard Government revenues.

Significant Changes Proposed In GST – Union Budget 2021

Obligatory Audit Requirement Relaxed

The businesses having a turnover above Rs 5 cr won’t be obliged to get their accounts audited by a chartered accountant. Thus, the need for an external certification of annual reconciliation statement has been abolished and the enterprises can rely on self-certification.

Interest Payable Only On Net Liability

The GST law obliges a registered person to deposit tax before the deadline prescribed by the government. If there is any delay in depositing tax, businesses are required to shell out interest up to the rate of 18%. Moreover, the government has now moved an amendment to the CGST Act which specifies that interest will only apply to the net tax liability.

Credit Available Only If Defined Conditions Fulfilled

Previously, Section 16 never had a condition to say that input tax credit shall be only available if the supplier has reflected his invoices in GSTR. As per Budget 2021, tax credit can be availed only if the supplier gives a suitable invoice and provides its details in his statement of outward supplies.

Few Other Significant Reforms

The government also introduced amendments which state that a tax appeal can be filed in certain instances only after 25% deposit of the contested amount with the department. Thereby, allowing the GST commissioner to dismiss frivolous claims and spend time to deal with genuine cases.

Government of India has introduced Equalisation Levy (EL) on consideration received by non-resident e-commerce operators for e-commerce supply or services at 2% with effect from 1 April 2020. Equalization levy taxes the digitalized products/services. Its provisions refer to tax consideration for the online sale of goods and online provision of services. Thus, digital offerings of Non-resident sellers such as online books and online gaming services come under the purview of EL. If an e-commerce operator earns a service fee from an Indian resident for selling its goods or services online, the fee earned by the marketplace would be subject to EL.

The government has clarified that e-commerce supply or service will be subject to an equalization levy when any of the following activities take place online such as acceptance of the offer for sale and placing the purchase order. It also includes acceptance of the purchase order, supply of goods or provision of services, partly or wholly. Further, according to Budget 2021, the taxable amount for which the equalization levy has to be paid by an e-commerce platform will include the entire sale amount. In addition, the government has clarified that the services which are subject to tax as royalty or fees for technical services under the Income Tax Act will be out of the ambit of equalization levy.

To learn more about the tax-related provisions related to the eCommerce sector, you may get in touch with us