How the ONDC will change the game for small businesses taking the ecommerce route

The popularity of online shopping continues to grow, making ecommerce businesses very attractive. Many people are looking at establishing an online store rather than a physical store. Not only does such a set-up allow you to launch quickly, it also helps save real estate or rental costs. 

Setting up a business requires certain mandatory registrations. Any small business must be established as a sole proprietorship, partnership firm, Limited Liability Partnership (LLP), or a company before setting up a store on an ecommerce platform.

A small business established as a sole proprietorship needs to have a bank account in the name of the sole proprietorship firm. There is no other specific registration required for a sole proprietorship firm. 

A sole proprietor can establish his/her business as a One Person Company (OPC) instead of a sole proprietorship. An OPC is a company established by a single person and it can operate with only one member and director. An OPC has many benefits compared to sole proprietorship such as separate legal entity, limited liability of the proprietor, and ease of getting funds. 

When the small business is established as a partnership firm, the business must be registered with the Registrar of Firms and have the Partnership Registration Certificate. When the small business is established as an LLP, OPC, or a private limited company, it must be registered with the Registrar of Companies and must obtain the LLP/Company Registration Certificate.

After registering the business with the respective authority, the small business owners must apply for a Shop and Establishment Registration Act Certificate. Since the business sells products, goods, or services, it is covered under the Shop and Establishment Act. Thus, the businesses must apply for this registration from the respective state labour department. 

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Registering for GST

Another mandatory requirement for a small business to sell products on ecommerce platforms is GST registration. All businesses operating through ecommerce platforms need to apply for GST registration, irrespective of their turnover. 

The GST council has proposed to remove the registration requirement for intra-state ecommerce sellers when their turnover is below the threshold limit (turnover is below Rs 20 lakh or Rs 10 lakh [for Northeastern states]). This decision of the council will be effective only after the official notification comes out.

The GST council also decided that composition taxpayers would be allowed to make intra-state supply through ecommerce operators subject to certain conditions w.e.f 01.01.2023. However, an official notification is awaited. 

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Open Network for Digital Commerce 

The Government of India has launched the Open Network for Digital Commerce (ONDC) as an alternative to ecommerce platform aggregators like Amazon, Flipkart, etc., where small businesses can enter ecommerce and sell their products online. 

ONDC is a freely accessible online system for consumers and traders. It is an open network that will display products and services from all participating ecommerce platforms in search results across all apps on the network. It is a network that connects sellers, buyers, payment and logistic providers with each other. 

The ONDC boosts small online retailers by ushering in inclusivity, discoverability, and interoperability. It will empower suppliers and consumers to break the monopoly of giant ecommerce platforms. 

The biggest advantage is that ONDC allows everyone to participate, even the smallest sellers in the most rural areas. It will benefit small retailers by ensuring that they serve customers online through ecommerce platforms, get an equal opportunity to engage with big firms, and protect their businesses.

The Council’s decision to remove registration requirements for intra-state ecommerce suppliers (within the threshold limit) benefits the business. When this decision is notified and effective, it will boost many small businesses to operate through ecommerce platforms. Also, it eases compliance burden for small ecommerce operators.

However, most ecommerce businesses would do inter-state business and not restrict to only intra-state as ecommerce platforms provide access and opportunities to operate business across the country without any hassle. All businesses doing inter-state business are required to get GST registration irrespective of turnover. It would be beneficial if the Council relaxes the registration requirement for inter-state ecommerce sellers up to a certain turnover threshold limit.

When small retailers participate in ONDC, it will, in turn, result in the success of ONDC and help break the monopoly of big ecommerce aggregators. The government has currently launched the pilot phase of ONDC in five cities. By August 2022, all systems will become operational. ONDC will start servicing 100 cities, and will go live at the national level, covering the entire country by the end of 2022.

Small businesses may also have a logo that helps customers identify and distinguish their products from others. Though it is not mandatory to obtain trademark registration for the logo, it is highly recommended as it helps to protect the business logo from being misused by others.