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E-commerce has greatly impacted the aspect of customer outreach, like never before. Irrespective of geographical locations, buyer and seller are bonding online, and given the unprecedented success sellers are finding online, the typical brick-and-mortar model is indeed facing a challenge.  Add to that, the additional impetus by the Government, and this is one marketplace, suppliers will be flocking to even more, in the days to come.

Which is why, it is all the more important to understand the GST impact on E-Commerce Sellers:

Mandatory registration
Similar to e-commerce operators, all suppliers on e- commerce platforms are mandatorily required to register under GST, irrespective of turnover. In other words, even if an e-commerce supplier’s aggregate turnover is less than INR 10 Lakhs (in Special Category States) or INR 20 Lakhs (in rest of India), registration will be mandatory. This will definitely imply an increase of compliance activity, and associated costs. However, with the adoption of the right technology, a more disciplined approach to maintain accounts and records, and careful planning of cash-flow – the pain can be mitigated.

Non-eligibility for Composition Scheme
E-commerce sellers in GST will not be eligible for registration under the composition scheme. Hence, even if the person’s aggregate turnover does not cross INR 1 Crore, which is the revised composition scheme limit as per the latest GST meet on 6th October, he / she does not have the option to become a composition tax payer.

Negative GST impact on E-Commerce Sellers’ Cash flow
E-commerce suppliers generally operate on thin margins. Once a sale is made through an e-commerce platform, the e-commerce operator collects the money from customers and remits it to the supplier, after deducting the marketplace commission. Sellers on e-commerce in GST will primarily face 2 challenges:

  • Their cash flow will be affected by the tax collected at source i.e. TCS at 2% by operators. This tax paid will be available as input credit to the supplier on 15th of the next month, which means cash blockage of 30-45 days.
  • The ITC available to e-commerce suppliers will be dependent upon their vendor’s compliance – as ITC can be availed only if the vendor has filed the monthly return and made full payment of the tax due. In case of non-compliance by the vendor, the e-commerce supplier will lose the eligible ITC.

However the good news is that TDS and TCS have been deferred till 31st March, 2018, and thus this gives ample time to e-commerce players to settle in their operations in the GST era, and be better equipped to meet this challenge.

Seamless availability of ITC
In the previous regime, e-commerce platforms would charge service tax on the services provided to suppliers on their platform – such as warehousing, logistics, marketplace commission etc. Suppliers were unable to claim input tax credit on the service tax paid, which would become a cost. But, in the GST era, ITC will be available on all inputs used in the course of or for the furtherance of business. In effect, this will result in reduced cost of operations for suppliers as they will now be able to take the credit of tax paid on inputs, which was until now adding up to their cost – which is bound to be a positive GST impact on E-commerce sellers.

Returns process
A supplier of e-commerce under GST, has to follow the same returns process applicable to a regular dealer – which means adherence to GSTR 1, GSTR 2 and GSTR 3 – each of which need to be processed diligently. In addition, the details specific to e-commerce transactions will need to be specified. Adherence to these forms, will ensure that the right ITC gets availed by the E-commerce suppliers.

One Nation, One Market
In the previous regime, suppliers had to keep track of the State-wise taxation rules relating to the products they deal in as often, the same product would be taxed at different rates in different states. In some cases, due to ambiguity in dealing with the models of e-commerce business, multiple taxes were imposed on the same product. Many States also imposed entry tax on the entry of goods sold online to their states. However, under GST, goods and services have fixed rates across the nation, irrespective of whether they are sold at physical stores or online. Hence GST for e-commerce sellers, would definitely mean opening up of the entire nation as one united market.

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Pramit Pratim Ghosh

Author: Pramit Pratim Ghosh

Pramit, who has been with Tally since May 2012, is an integral part of the digital content team. As a member of Tally’s GST centre of excellence, he has written blogs on GST law, impact and opinions - for customer, tax practitioner and student audiences, as well as on generic themes such as - automation, accounting, inventory, business efficiency - for business owners.