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GST explained for online businesses

Alok Patnia
3rd May 2018
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The Union Government introduced the Goods and Service Tax in July last year to unify the country under a single tax regime. The new tax sought to overcome the complicated indirect tax system with overlapping taxes levied by the Centre and State.

Over a period of time, it is expected to bring more people and businesses under the tax net, and at the same time, make Indian products competitive in the domestic and international markets with more transparency and effective administration.

Over the past few years, the ecommerce industry in India has gained prominence and it has several key components such as marketplace players, logistics companies, warehousing businesses, each of which need to work in tandem to make the industry viable. Effective implementation of GST is of paramount importance for the success of ecommerce in India.

To understand the impact of GST on ecommerce, one needs to understand the various business models. Online businesses can be a marketplace model where products and services from multiple vendors are displayed on the online platform and supplied by actual sellers to end buyers directly, or an inventory model where products are purchased by an ecommerce company, stocked at its warehouses and supplied to customers. Other models include the aggregator model.

Ecommerce companies can also be categorised based on their user base - B2B, B2C, C2C and C2B.

In normal circumstances, sellers get registered under GST and charge the same on invoices raised to the end customer. The GST is remitted to the Government, after adjusting Input Tax Credit for the tax already paid on one’s inward supplies and eligible expenses.

Under ‘Inventory or Direct Supply’ model, where an online platform itself is the supplier of services, the above rule applies in a straight forward manner when the supplier charges the applicable GST and pays the same to the Government.

Some complications arise under the ‘Marketplace Model’ where the actual supplier is different from the online platform. Here the supplier is different person, but the invoice is raised from the online platform and payments are also mostly received by the online platform.

This report throws light on the impact, legal aspects, and other key allied components of ecommerce and GST.

Download the report here.

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