Impact of GST on Online Sellers

GST is, without a doubt, the biggest indirect tax reform till date. It will include an array of levies like excise, service tax and VAT. This helps create a streamlined market for smooth transfer of goods and services.

With Goods and Service Tax effective from 1 July, small-time sellers on E-marketplaces had feared losing businesses as small-time sellers were yet to register their operations under GST guidelines. But things have become better for e-marketplaces as the government has adjourned the implementation of GST on e-commerce platforms. Small businessmen who sell on e-marketplaces don’t have to register immediately.

This welcome change was appreciated by e-commerce players. ‘This ensures business continuity for the marketplace, but most importantly benefits our sellers since they don’t have to deal with pressures of cash flow at a time when they are transitioning into a new tax regime,’ said an Amazon spokesperson.

As per this provision by the government, the e-commerce companies need not collect 1% tax collected at source (TCS) while paying their clients (suppliers) for products collected under GST. However, as per the Central GST (CGST) and State GST (SGST) they are required to collect TDS (Tax Deducted at Source) or TCS at 1% on payments that exceed 2.5 lakhs to suppliers of products and services.

When the news broke out about the new Goods and Service Tax, e-commerce players requested the government to put it on hold as the small-time businessmen would find it difficult to register their operations immediately. So based on this request from the trade industry, the government decided to postpone the provision regarding TDS (Section 51) and TCS (Section 52) of CGST/State ACT 2017 for a smooth rollout of GST. The government confirmed that a new date for GST implementation would be announced later.

If you are a small-time seller on any of these online platforms and have a turnover of less than Rs.20 lakh, you don’t have to register yourself under GST for selling your products through e-marketplaces. Government has decided to give you more time to prepare yourself for the historic tax reform. You are liable to register under Goods and Services Tax only when the threshold limit is breached, that is, if your turnover becomes more than Rs.20 lakh.

Trade Barriers

One nation one tax. That’s the essence of GST. Earlier, there was no uniformity of tax rates. Different states determined different tax rates to specific to products. For instance, a laptop in State 1 is taxed under VAT at 5% and is taxed at 2% in State 2. So sellers in State 1 preferred to sell their laptops in State 2 rather than locally. This resulted in loss of revenue for State 1.

E-commerce operators had set up their distribution centres only in specific places and collect tax applicable on sales made from such centres. Many states even imposed entry tax on goods coming from other states to compensate for the loss of revenue. This trade barrier restricted movement of goods from one state to another.

With GST, such trade barriers will stop as GST is inclusive of entry tax. The state earns revenue from GST regardless of where the product was sold.

Increase in Compliances

E-commerce operators are required to report all supplies by the seller and the TCS (Tax Collection at Source) collected on a monthly basis. Both the sales reported by the e-commerce player and the sales declared by the seller should match. Any difference, if there is any, will be added to the income of the supplier and will be responsible to discharge GST. E-commerce operators should report the product codes and the rates of each product individually. They have to map every sale done by the supplier and ensure TCS is deducted. This is quite a hassle for both e-commerce operators and suppliers. Furthermore, e-commerce operators should register in each state and report separately on a monthly basis. This increases their challenges in compliance and costs.

In the end, we can expect a slow first quarter in the e-commerce business, as implementation, seller registration, and other operations will take time. But it will gain momentum slowly. E-commerce industry in India is growing rapidly and has certainly become one of the major building blocks of our economy. GST or not, it E-commerce industry has the potential to mould itself for any kind of reforms that come its way.


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