Updated Provisions under GST and Income Tax Act applicable on E- Commerce Business platform or online market place

[Rajeev Jain]

PROVISIONS UNDER GST:

Concept

Definition of E commerce and E commerce operator:

As per Section 2(44) of CGST Act, 2017: Electronic commerce means supply of goods or services or both including digital products over digital or electronic network.

As per Section 2(45) of CGST Act, 2017: Electronic Commerce Operator means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.

GST Compliances flow is given as under:-

GST Registration:-

E-commerce portals are required to be compulsorily registered under Section 24(ix) of the CGST Act, and shall be paying GST on commission amount received from various suppliers, without availing any exemption threshold limit.

E-commerce portals are charging a commission from various suppliers. It amounts to support services, falling under Tariff heading 9985 “Support Services”, and shall attract GST at the rate of 18%. 

The tax shall be charged in the invoices raised against supplier of goods or services; and such suppliers can avail ITC on such GST charged, if otherwise eligible.

If any person is already registered under GST in any other capacity then ECO, then he shall have to apply for registration as ECO separately.

Logistic Service Provider will not come under the exempt services under section 9(5) hence they are to be dealt as applicable in GST law however their taxability depends on the threshold limit.

Recent Amendments under Finance Act 2023:

A taxpayer can opt into the composition scheme even where they are supplying goods through e-commerce operators who collect TCS under Section 52.

Collection of Tax at Source (TCS) under E commerce:

As per section 52 of the CGST Act 2017, An electronic commerce operator (not being an agent) shall collect the TCS at the rate of 1% (0.5% CGST and 0.5% SGST) as per section-52 on the net value of taxable supplies (other than supplies u/s 9(5)) made through it by other suppliers and consideration of such supplies is to be collected by ECO.

a. TCS Registration:

The operators have to get separate TCS collection number (separate from normal registration) from GST portal for collection of tax.

So there will be 2 registrations for the operators, 1 will be for TCS collection and 1 will be for filing other normal returns.

The TCS amount collected shall be paid to govt. on or before due date “10th of next month”. So payment is on monthly basis.

Monthly returns shall also be required to be filed in FORM GSTR – 8, containing details of the outward supplies of goods/services.

Every ECO who collects the TCS shall furnish the annual return containing details of outward supplies of goods/services made through it in form GSTR –9B.

b. Exemption from TCS Registration (subject to confirmation from department)

E-commerce operators that are required to collect TCS as per section 52 are compulsorily required to get registration in each state from where it made supplies, irrespective of the amount of turnover. In GST law no relaxation is provided to ECO in term of registration threshold limit.

As per the GST law, the e-commerce operators are not allowed to get TCS registration in some states/UTs, where they do not have any physical presence, and this became a challenge to few taxpayers.

To overcome this challenge, from 01st April 2020 onwards, the e-commerce operators not having a physical presence in any particular state/UT has been allowed to apply for TCS registration based on their registered head office/premises address.

Important points to note:

There is no threshold limit in the section, hence irrespective of amount of ECO is liable to collect TCS @1% in all case. We have to deposit it by 10^th of next month.

The Act says we are liable to collect TCS on net amount hence if there is a sales return then we shall have to collect TCS on net amount.

Penalty under Finance Act 2023:

Penalty of Rs.10,000 or the tax amount, whichever is higher, shall be charged on e-commerce operators who,

• Allow an unregistered persons to sell goods or services or both through the operator except when they are exempt.
• Allow any GST-registered person from supplying outside their registered state any goods or services via the operator where they are ineligible to do so.
• Operator do not file accurate FORM GSTR – 8 for information on the online sale through them by e-tailers except persons exempted from GST registration.

PROVISIONS UNDER INCOME TAX ACT:

Statutory Provisions under Income Tax Act

Finance Act, 2020 inserted a new section 194-O into the Income-tax Act, 1961 introducing a withholding tax on e-commerce transactions as from 1 October 2020.

Under section 194-O, resident and non-resident e-commerce operators are required to withhold income tax at 1% of the gross amount of sales of goods, or provision of services, or both.

Role of payment gateways and compliances:

Generally In all the E commerce platforms, Payment Gateways services are used , so to understand this model completely we need to understand compliance from the end of Gateways:-

CBDT has given some clarity in this area which is being given below:

The Income Tax Act also inserted a sub-section (1H) in section 206C based on which a seller selling goods exceeding Rs. 50 lakh in any previous year to collect tax from the buyer “a sum equal to 0.10 per cent of the amount as income-tax” at the time of sale effective October 1.

Issuing guidelines for Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) on e-commerce transactions, the Central Board of Direct Taxes (CBDT) said that the payment gateway won’t have to deduct tax under section 194-O of the Income Tax Act on a transaction if it has been deducted by the e-commerce company.

However, with the clarification by the board, if the tax has been deducted by the e-commerce firm, then the payment gateway won’t have to do so. For this, the e-commerce company can also get an undertaking from the gateway for the tax deduction. The clarification was among the guidelines issued by CBDT on the applicability of 1 per cent TDS by e-commerce operators on sale of any goods and services from October 1, 2020, as per the 194-O section inserted into the Finance Act, 2020. The exemption, however, has been given to “certain individuals or Hindu Undivided Family fulfilling specified conditions”. 

Important points to note:

After the insertion of this section department has put some compliance burden on the soldiers of e commerce operator (ECO). ECO has to deduct tax @1% under section 194-O on sale amount. If we plan to take our share out of the sales proceed collected on behalf of the vendor whether it is our commission or any charges like logistics charges, management fees, handling charge etc. we can keep or share but we shall have to deduct TDS on Sale amount. There is no threshold limit.

Some relaxation has been given in the case where vendor is either individual or HUF. In the case of these vendors if sale amount for the year does not exceed Rs. 5,00,000 we are not liable to deduct TDS.

One important point to note is that, this section of TDS has overriding effect over all the sections of TDS of Income Tax Act. It means suppose we charge commission or anything from the vendor, No TDS will be deducted on that amount by Vendors.

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Author can be reached at "[email protected]"/9312253876.

Discussions to this article

[Parvez Baig]

Dear Sir,

Thank you for this detailed explanation on this topic.

I have a doubt regarding how a composition dealer can sell goods through ECO because in that case inter state supply can take place.

And where it is mentioned in the ACT.

Thank You

CA Arpit Agrawal