Taxation on E-Commerce Operator and E-Commerce Sellers

With the growing popularity and demand for online services it is clear that digitization is the way of the future. With the expansion of information and communication technology in India and globally, the supply and procurement of goods and services digitally have undergone rapid growth. Indeed, e-commerce is now growing significantly faster than the global economy.

In earlier era when digitization is not so popular, Income earned from E-commerce platform remains undisclosed as no such strict provisions are available in Income Tax Act, 1961 to disclose this income. But now a days with every coming year as E-commerce business is growing, Income Tax authorities are also becoming more strict to cover all heads of income generated from E-commerce platform to cover the tax provisions and widen the scope of taxability of E-commerce income to cover each and every part under tax scope.

In this article, we discuss what are the?direct and indirect tax?implications for e-commerce operator who could either be a resident or a non-resident.

What is E-commerce?

Ecommerce as it is popularly known is buying and selling of goods and services via the internet. Ecommerce generally refers to the transactions made during the online?trading?of goods and services. So, basically when you as an individual or as an organisation engage in the purchase or?sale?of goods and services online, you are engaging in Ecommerce.

E commerce transactions consist of following parts

Ecommerce platforms have also helped many small businesses to grow as it helps them to sell their products online and increase the reach of their products to a large number of customers using the ecommerce platform without physical investment in products and space to store those products. One can offer their products to customers all around the world using the internet. Entrepreneurs are attracted to e-commerce these days because of the low entry barriers.

Process flow of E-commerce transaction

Income Tax provisions for E-commerce operator (ECO)

For Non-Resident Indians (NRI) ECO

Equalisation levy on online advertisement services provided by Non- Residents u/s 165

Equalization Levy was first introduced by Finance Act, 2016. “Equalisation Levy”?which provides for taxation the digital transactions. Equalisation levy is direct tax on the income of a Non Resident E-Commerce operator but it is a levy different from Income Tax. Any receipt which were subjected to equalisation levy were thus made exempt from income tax.

Initially vide Chapter VIII of Finance Act, 2016, equalization levy @6% was imposed on consideration received for the following specified services rendered by a non-resident service provider:

• Online advertisement
• Every person, being a resident and carrying on business or profession or a non-resident having a permanent establishment in India is liable to deduct the equalisation levy from the amount paid or payable to a non-resident in respect of the specified service at the rate of 6%, if the aggregate amount of consideration for specified service in a previous year exceeds one lakh rupeesFor Example: If any resident person is making payment to Non resident for advertising his business on digital platform say facebook and this total payment made to that non resident exceeds Rs. 1,00,000/-, then he is required to deduct equalisation levy @6% and then make payment and file return for equalization levy.??

Extension of Scope of Equalisation Levy to Ecommerce transactions being sale of goods or provisions of services:

Vide Finance Act, 2020, the scope of equalisation levy is now extended by making suitable amendments and introducing new sections in Chapter VIII of Finance Act, 2016.

Effective from 1 April 2020, the Finance Act, 2020 has introduced a new levy of 2% on the e-commerce operator on receipt of consideration for online sale of goods or services, made or provided or facilitated by it (on an amount exceeding Rs. 2 Crore in aggregate) from:

• An Indian resident
• A person using an Indian IP address when purchasing such supplies/services
• Non-residents only in the following cases:

a) Sale of advertising – targeting an Indian resident or Indian IP user

b) Sale of data – collected from an Indian resident or Indian IP user.

The equalisation levy on e-commerce transaction shall not be charged in the following cases:

• Where the e-commerce operator has a permanent establishment in India and e-commerce supply or services is effectively connected with such permanent establishment; or
• Where the equalisation levy is leviable under section 165 of the Finance Act 2016 being equalisation levy on online advertisement services; or
• Sales, turnover or gross receipts of the e-commerce operator from the e-commerce supply or services made or provided or facilitated is less than Rs. 2 crore during the previous year.

Every e-commerce operator will be required to make Equalization levy payments quarterly as mentioned below:

?Quarter Ending Due Date

30th?June - 7th July

30th?September - 07th?October

31st?December - 07th?January

31st?March - 31st?March

For Resident?Ecommerce Oprator

In Today’s fast and technological world most of the business are online through some Ecommerce operator. Shops selling their products through E-commerce with paying little commission to any customer at any place in the whole world. Some of the E-commerce are not an Indian entity and there is some benefit taken by Indian entity. Thus, some section like 194O under TDS in Income Tax Act, 1961 and TCS provision in GST are bringing by the government.

TDS u/s 194O for E-commerce transactions

Budget 2020 has introduced TDS on E-commerce Transactions. The main motive behind this section is to trace the sellers who were registered on sited like amazon, Flipkart etc. and were making big sales, but were not filing ITR. E-Commerce Operator will deduct TDS of E-Commerce Participants who are selling their goods or services via their platform.

E-Commerce Operator will deduct TDS of E-Commerce Participants who are selling their goods or services via their platform and this provision is applicable from 01st October 2020

• When will the TDS be deducted: The TDS will be deducted at time of payment or credit of amount of sale of goods or service or both to the account of E-Commerce participant whichever is earlier.
• Any payment made by purchaser of goods or recipient of services directly to e-commerce participant for sale of goods or provisions of services or both facilitated by e-commerce operator shall be deemed to be paid by e-commerce operator and TDS shall be required to be deducted on the same;
• What is rate of deduction of TDS on E-Commerce transactions: Rate of Deduction of TDS on E-Commerce is 1% on gross amount of sale of Goods or service or both. If PAN not furnished, TDs will be deducted @5%. ?Exceptions
• TDS under section 194-O not to be deducted in case of

-??????An individual or HUF only, where the aggregate gross sale of goods or services or both is not likely to exceed INR 5 Lakhs during the FY; and

-??????such person has furnished PAN or an Aadhar to the e-commerce operator.

• Any payment which are covered under this section shall not be liable to TDS under any other provision of the Act?

Note:

When a resident ECO remits the amount to a non-resident supplier, TDS is required to be deducted under Section 195.

Other points to consider

• Ecommerce Participant can make application before TDS AO for lower deduction certificate u/s 197 of Income Tax Act, 1961
• Gross payment (before deducting commission) is subject to TDS under section 194-O at the rate of 1% (in non-PAN cases, tax is deductible at the rate of 5%). However, if there is any GST indicated separately in the invoice, it shall be excluded for the purpose of TDS
• It is provided that the provisions of section 194-O,?of the Act shall not be applicable in relation to,-

1. transactions in securities and commodities which are traded through recognized stock exchanges or cleared and settled by the recognized clearing corporation, including recognized stock exchanges or recognized clearing corporation located in International Financial Service. Centre;
2. transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC;
3. If in the subsequent years of policy the insurance agent or insurance aggregator has no involvement in transactions between insurance company and the buyer of insurance policy, he would not be liable to deduct tax under section 194O in subsequent years. For example, If ABC Insurance company sales insurance through online sites say policybazar.com or like that. If in Current year policybazar collects insurance premium of say 5lakh for first year of insurance. In this case, policybazar will deducted TDS of ABC Insurace company under 194O. In subsequent years policy holder directly making payment to ABC insurance company, then policybazar will not be required to deduct TDS. But in this case in subsequent years ABC Isurance company will deduct policybazar TDS u/s 194D on commission paid.
4. The payment gateway will not be required to deduct tax under section 194-0 of the Act on a transaction, if the tax has been deducted by the e-commerce operator under section 194-0 of the Act, on the same transaction

Income Tax Returns

Commission, which is the major source of Income for ECO, is grouped under the head ‘Profits and Gains from Business and Profession’ to compute Income Tax. The compliance for resident ECO is tabulated below

Summary of Direct Tax in E-commerce

Provision under GST for E-commerce transactions

Though E-commerce helps business go grow fast without any geographical boundaries, E commerce taxation is complicated as it need to comply with lot of rules and regulations and some are contradictory with each other and need to follow both rules simultatiously.

Like with the introduction of TDS u/s 194O, E-commerce trasanctions need to follow TDS and GST TCS both rules.

GST compliances under E-Commerce transactions

Registration compliance under GST

E-commerce operator- Every E-commerce operator is mandatorily required to register under GST irrespective of turnover.

Separate GST TCS registration is also required for E-commerce operator.

Buyer- Every buyer exceeding threshold limit of registration requires registration under GST

Seller- Every seller is mandatorily required to register under GST Except you are providing following services which comes under specified services u/s 9(5) of CGST Act.

-??????Accomodation services

-??????Transportation of passengers

-??????Housekeeping services

For specified services u/s 9(5) of CGST Act, as specified above E-commerce operator is liable to pay GST and not seller.

TCS on E-commerce transaction under GST

Tax Collected at Source (TCS) under GST means the tax collected by an e- commerce operator from the consideration received by it on behalf of the supplier of goods, or services who makes supplies through operator’s online platform. TCS will be charged as a percentage on the net taxable supplies

Who Is Liable To Collect TCS Under GST?

Certain operators who own, operate and manage e-commerce platforms are liable to collect TCS. TCS applies only if the operators collect the consideration from the customers on behalf of vendors or suppliers. In other words, when the e-commerce operators pay the consideration collected to the vendors they have to deduct an amount as TCS and pay the net amount. Here are few exceptions to the TCS provisions for the services provided by an ecommerce platform:

a. Hotel accommodation/clubs (unregistered suppliers)

b. Transportation of passengers – radio taxi, motor cab or motorcycle

c. Housekeeping services like plumbing, carpentry etc. (unregistered suppliers)

?When will the liability of collecting TCS arise?

TCS will be collected by e-commerce operators while making a payment to the vendor. This payment will be the consideration collected on the vendor’s behalf for the supplies made by him via the online portal. This tax will be collected on the net value of taxable supplies.

What is the rate applicable under TCS?

The dealers or traders supplying goods and/or services through e-commerce operators will receive payment after deduction of TCS @ 1%. The rate is notified by the CBIC in Notification no. 52/2018 under CGST Act and 02/2018 under IGST Act. This means for an intra-state supply TCS at 1% will be collected, i.e. 0.5 % under CGST and 0.5% under SGST. Similarly, for a transaction between the states, the TCS rate will be 1%, i.e. under the IGST Act.

?How to compute taxable value of the supplies for TCS?

The value for the collection of the tax will be the ‘Net Value of Taxable Supplies.’ This net taxable value will be calculated as under:?

The total value of taxable supplies of goods or services (Other than notified services under GST Law by all registered persons)

Less: Taxable supplies returned to the supplier through E-commerce operator

= Net value of Taxable Supplies

The new Section of TDS in Income Tax Act, 1961(Section 194-O) has indeed increased the compliance burden of the E-Commerce operators who were already deducting TCS under the provisions of GST Act.

That means E-commerce operators are compiling with both TDS under IT ACT as well as TCS provisions under GST ACT

GST Liability and Compliance

GSTR-8 for E-Commerce Operator

• GSTR -8 is GST return filed by E-commerce operator who is liable to collect tax at source on E-commerce transactions
• GSTR 8 contains details about taxable supplies and tax collected at source by suppliers who use ECO portal to conduct transaction
• Filing of GSTR 8 is monthly and to be filed before 10th of every month.
• Filing of GSTR 8 every month is not mandatory, if no transaction which relates to GST TCS takes place in particular month, then no need to file GSTR 8 for that month
• If there is no TCS transaction in particular month, but there is rejection of TCS by supplier which is auto populated in table 4 of GSTR 8, it is not mandatory to file GSTR 8 for that month, if there is no TCS liability.
• ECO can file GSTR 8 for the peiod of TCS liability in later months and amend the rejected documents of earlier returns filed in the said tax period itself.
• Amendment in TCS details in Table 4 of Form GSTR-8 is possible only when counter party has non accepted TCS reported. Once counter party accepted TCS details, amendment can not be made later on.
• Currently no late fees is charged for late filing of GSTR-8 beyond due date, but interest will be charged in case of delay in payment of GSTR 8 TCS tax liability

Example of GST TCS and TDS on E-Commerce Operator?

ABC is E-commerce Participant and Amazon is E-commerce operator

Note: TDS has to be deducted on gross amount of sales. In the absence of defining the term gross amount of sale?and as compared with GST provisions where the TCS has been collected on net value of taxable?supplies?then it can be interpreted that the TDS has been deducted on the gross value of?sales.

E-commerce trades give rise to business as it does not include any geographical border restriction, but it is complicated in taxation purpose as well.

Thus, one should keep in mind all tax implications before entering into E-commerce transactions and take advise of expert to avoid any legal non compliances.