Everything about e-commerce taxation in India
What's the story
The rise of the digital marketplace has transformed the way businesses operate, necessitating a paradigm shift in global taxation policies.
In India, e-commerce is governed by the Income Tax Act and GST laws.
It's crucial for businesses to comprehend these tax regulations to maintain compliance and optimize their tax liabilities.
This article delves into the key taxation aspects influencing e-commerce in India.
GST basics
GST compliance for e-commerce
In India, e-commerce operators are required to register for GST if their turnover exceeds ₹20 lakhs, or ₹10 lakhs in Northeastern states.
They have to collect GST at rates ranging from 5% to 28% on taxable supplies.
Plus, a 1% Tax Collected at Source on the net value of taxable supplies made by others through their platform is also applicable.
TDS provisions
Income tax implications
The Finance Act 2020 implemented a new section, 194-O, which has been in effect since October 1, 2020.
This section requires e-commerce operators to deduct tax at source (TDS) at the rate of 1% on the gross amount of sales or services facilitated through their digital platforms.
This deduction applies when payments are made to resident sellers or service providers. The limit for this deduction is ₹5 lakh per annum.
Digital transactions
Equalization levy considerations
Introduced in 2016 and expanded in 2020, the equalization levy is a tax on digital transactions with foreign e-commerce operators supplying goods or services to Indian residents or accessing an IP address located in India.
The levy applies at two rates: 6% on online advertisement services provided by non-residents without a permanent establishment in India and 2% on sales by foreign e-commerce operators exceeding ₹2 crores annually.
Compliance essentials
Reporting requirements
E-commerce companies have to comply with strict reporting obligations under both GST and income tax laws.
They need to file monthly or quarterly returns reporting sales transactions, TCS collected under GST, TDS deducted under Section 194-O, and any other taxes or levies applicable such as equalization levy payments.
Non-compliance with these reporting requirements can lead to significant penalties and interest charges.
Tax planning
Strategic planning for optimization
Proper tax planning can save e-commerce companies a ton of money in India.
You should look for opportunities to claim input tax credits under GST law, structure your operations to avoid permanent establishments that trigger higher taxes, and take advantage of double taxation avoidance agreements when you can.
Regular advice from tax consultants will help you stay on top of changes in the law and minimize your overall tax bill.