The Goods and Service Tax is a type of indirect tax applied to various goods and services, excluding those falling under exempted categories. If you sell goods or services through an e-commerce website managed by e-commerce operators, it becomes mandatory to undergo GST registration. Special provisions under the CGST Act, 2017, and IGST Act, 2017 have been established for obtaining a GST number for online selling. These provisions aim to simplify the process of filing and paying taxes for online sellers. Considering this, in this blog, we shall see the scope of GST for online sellers.
Understanding GST for Online Sellers Models
GST for online sellers models involves:
Direct Sales Model
In online selling, the method through which Goods and Services Tax is handled depends on the specific model employed. One prevalent approach is the Direct Sales Model.
Under the Direct Sales Model, sellers offer their own products directly to consumers through their individual websites. It is imperative for individuals engaged in this form of online selling to adhere to the standard GST registration rules.
E-commerce Aggregator Model
Another significant method in online sales involves the use of e-commerce aggregators such as Flipkart and Amazon. In this, transactions occur on the e-commerce portal. The treatment of GST in this scenario varies, necessitating a distinct understanding of the taxation process for online sellers in the country.
Understanding Tax Collected at Source in E-commerce
In the context of e-commerce transactions, the concept of Tax Collected at Source is crucial. When goods or services are sold through an e-commerce portal like Amazon, the responsibility of deducting a specified amount from the payment collected from the customer lies with the e-commerce operator. This deduction occurs before the operator disburses payments to the seller.
TCS Rate and Payment
The TCS amount, capped at 1% of the sales, is a form of tax that must be remitted to the government. Sellers should be aware that this deduction is subject to a maximum limit. Furthermore, the deducted TCS can be claimed as a deduction on the seller’s Goods and Services Tax filings within the same month it is deducted. Timely filing allows sellers to credit this tax and manage their financial responsibilities effectively.
Claiming TCS Credit
A noteworthy aspect is that sellers can claim the TCS as a deduction as soon as the e-commerce operator uploads the details of the TCS. This mechanism simplifies the process, ensuring that sellers can promptly address their tax liabilities and benefit from the claimed credit.
Both the e-commerce operator and the individual sellers involved in the transaction are obligated to submit comprehensive details of all sales to the government.
Threshold Exemption in Online Selling under CGST Act, 2017
According to Section 24(ix) of the Central Goods and Services Tax Act, 2017, a significant provision pertains to the registration requirements for Goods and Services Tax in the context of online selling.
This statutory provision specifies that individuals engaged in online selling are obligated to register for GST, irrespective of the value of the supply made i.e. GST for online sellers is mandatory. Unlike certain other scenarios where a threshold exemption might apply based on the turnover, online sellers are not entitled to such exemptions.
Exclusion from Threshold Exemption
The specific wording of Section 24(ix) underscores that no person supplying goods or services through e-commerce platforms can claim threshold exemption. This implies that the usual thresholds based on turnover, which might exempt certain businesses from GST registration, do not apply to those involved in online selling.
GST for Online Sellers: OIDAR Provision under IGST Act
In Goods and Services Tax, a distinct provision exists under the Integrated Goods and Services Tax Act for Online Information Database Access and Retrieval (OIDAR) services. This provision includes a specific category of online services involving the supply of information, database access, or retrieval services to consumers from a remote location.
Scope of OIDAR Services
The OIDAR provision includes a wide range of digital services provided solely through the internet, without any physical interaction between the service provider and the consumer. Examples of such services within this category comprise e-books, PDFs, and drivers.
Beyond the mentioned examples, the OIDAR provision extends to various online services, such as:
1. Online Gaming
2. Data Retrieval Software
3. Cloud Services
4. Intangibles like Music Delivered via Telecom Networks
5. Website Hosting
6. Electronic Data Storage
7. Digital Content (Films, TV Shows, Music, etc.)
Characteristics of OIDAR Services
A key characteristic of OIDAR services is the absence of physical interaction, with the entirety of the service delivered through digital means. This provision ensures that these online services are appropriately categorised for GST purposes, allowing for the application of relevant tax regulations to this evolving landscape of digital offerings.
Taxability of OIDAR Services under GST in India
The taxability of OIDAR services can be understood as:
Domestic Transactions
In the context of Goods and Services Tax in India, Online Information Database Access and Retrieval (OIDAR) services are subject to taxation. When both the supplier of online services and the consumer of these services are located within India, the transaction follows the supply rules outlined in the Indian GST framework.
Cross-Border Transactions – Supplier Overseas, Consumer in India
Similarly, if the supplier of the online services is based overseas, and the recipient is situated in India, the transaction remains subject to Indian tax regulations. This underscores the extraterritorial applicability of GST, ensuring that transactions involving overseas suppliers and Indian consumers comply with the tax laws in India.
Cross-Border Transactions – User Outside India, Supplier in India
Moreover, in situations where the user of the services is located outside India, and the supplier is within India, the transaction remains compliant with Indian tax laws. This remains applicable even if the consumer is situated in a non-taxable territory.
Registration Process under GST for Online Sellers
Online sellers can conveniently apply for Goods and Services Tax registration through an online process, eliminating the need to visit any government office. The government does not impose any fee for GST registration.
Online Process of GST for Online Sellers:
The registration process under GST for online sellers involves:
1. Visit the GST Homepage:
Firstly, to start the process of registration under GST for online sellers, access the Goods & Services Tax homepage to initiate the registration process.
2. Select Registration > New Registration:
Go to the menu on the top of the webpage and choose “Registration,” then proceed to “New Registration.”
3. Enter User Credentials and Verify OTP:
To move on with the process of registration under GST for online sellers, provide necessary user credentials and complete the verification process by entering the One-Time Password (OTP).
4. Upload Necessary Documents:
Upload scanned copies of all required documents as part of the registration process.
5. Select Registration Category:
Choose the appropriate category from options like taxpayer, tax deductor, and tax collector (e-commerce). This step is important in the process of registration under GST for online sellers for accurate classification, and professional guidance from StartupFino may be sought to ensure proper categorisation.
6. Understanding TDS (Tax Deducted at Source):
Under Section 51 of the Central Goods and Services Tax Act of 2017, certain registered persons are required to deduct Tax Deducted at Source before making payments to suppliers. This obligation applies to entities such as government departments, municipalities, and governmental agencies.
7. Differentiating GST TDS and Income Tax TDS:
Recognise that GST TDS is distinct from Tax Deducted at Source under the Income Tax Act, 1961. Transactions exceeding 2.5 lakhs are covered under both acts. The deduction rate is 2%, and the seller must deduct this amount from the payment to the supplier for the supplies made.
Final Thoughts
The registration process under GST for online sellers offers a simplified online approach, eliminating the need for physical visits to government offices. The absence of government-prescribed fees further facilitates accessibility. Online sellers must carefully navigate the registration steps, including document submission and accurate categorisation to ensure compliance. Additionally, understanding the implications of Tax Deducted at Source obligations is vital for certain categories of registered persons. By adhering to the prescribed procedures and seeking professional guidance when needed, online sellers can efficiently fulfil their GST obligations, contributing to a transparent and compliant e-commerce landscape.
