In the below text, we have collated common conceptual flaws and errors made by companies in their tax compliances.

In order to understand e-commerce, we will first understand the basic meaning and definitions given as per law.

  • What is E-commerce

In simple, e-commerce refers to any form of business transaction conducted online. The most popular example of e-commerce is online shopping, which is defined as buying and selling goods/ services via the internet.

Definition as per GST law

  • “electronic commerce” means the supply of goods or services or both, including digital products over a digital or electronic network;

  • “electronic commerce operator” which means any person who owns, operates, or manages a digital or electronic facility or platform for electronic commerce;

Now, we will first understand the tax obligations under different laws and then investment reporting requirements.

  • Tax compliances under GST

Firstly, let us understand the registration process under GST for e-commerce and the person supplying goods/services through such e-commerce.

Registration under GST

  • E-Commerce operator

Normally, when suppliers exceed the threshold limit of aggregate turnover, required to get GST registration. However, as per Section 24 of the CGST Act, the law has described certain classes of persons (including e-commerce operators) to compulsorily obtain GST registration irrespective of the threshold limit.

  • E-Commerce participants

Even a person who supplies goods or services or both, through an e-commerce operator (other than supplies notified in *Section 9(5) of CGST Act) needs to obtain GST registration irrespective of the threshold limit.

*Section 9(5) supplies include namely, Passenger transport services, Accommodation Services, and Housekeeping services. (Refer to the relevant notification to understand the terms of supplies)

Now, let’s understand the tax obligations on e-commerce operators under GST.

Tax obligation under GST

TCS (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 the operator’s online platform. TCS will be charged as a percentage of the net taxable supplies.

As per Section 52 of the CGST Act, every e-commerce operator required to deduct and deposit tax at the rate of 1% on the net value of taxable supplies. So basically, every dealer selling goods/services through e-commerce would get payment post deduction of TCS.

IllustrationXYZ Ltd, a registered supplier is supplying goods through an e-commerce operator. It has made supplies of INR 5,500,000 in the month of Sep 2019. The goods returned were worth INR 500,000 to XYZ Ltd. during the month of Sep 2019. Here, the net value of taxable supplies for TCS collection will be INR 5,000,000 and TCS @ 1%, i.e. INR 50,000 will be deducted by the e-commerce operator. Hence, the final payment to be made to the supplier is INR 4,950,000.

Due Date of TCS

TCS will be deducted during the month in which the supply is made. It will be deposited within 10 days from the end of the month of supply to the credit of the government.

  • Tax obligation under Income-tax

Under Income-tax, we will analyze the tax obligations on e-commerce. Let us understand the same in brief as follows.

  • TDS under Section 194-O

This section has been inserted via finance bill, 2020 to widen the scope of TDS by bringing participants of e-commerce (persons who supply through e-commerce) within tax range. E-commerce operators should deduct TDS while making a payment to resident e-commerce participants.

Now, let’s analyze the section in brief.

Applicability date

The provision of this section will be applicable from 1st October 2020.

TDS Rate

TDS to be deducted at the rate of 1% on the gross amount of sales/ services subject to Section 206AA of the Income-tax Act.

Person responsible to deduct TDS

The operator will have to deduct TDS while making payment to the e-commerce participant.

Exception

TDS will not be applicable in case of any payment made to e-commerce participants (being an Individual or HUF) where the gross amount of sales/ services or both of such individual or HUF, during the previous financial year does not exceed INR 500,000 and such participant has furnished his PAN or Aadhaar number to the operator.

Illustration - A Trader sold goods of INR 1,000,000 through Amazon. Gross sale value is INR 1,000,000, GST @18% comes at INR 180,000. The total amount payable is INR 1,180,000. TDS u/s 194-O @1% works out at INR 11,800*. The net amount payable to the trader is INR 11,68,200 (11,80,000 - 11,800)

(*Since the law says that TDS to be charged on gross value, we have considered the total amount of sales including GST on a conservative approach as there is no clarification has been issued by CBIC in this regard. There are difference of opinions on whether to include GST component under gross value and hence, the stand may differ)

  • Equalisation levy 2.0

Equalisation levy 1.0 was introduced via Finance Act, 2016 and is made applicable to the specified services (namely advertisement services) provided by non-resident service providers.

The government has extended the scope of equalisation levy via the Finance Act, 2020 to impose the tax on consideration receivable by non-resident e-commerce operators. Let’s understand it in detail.

Applicable date

This levy would be applicable from 1st April 2020.

Rate of levy

The equalisation levy will be charged at the rate of 2% on the amount of consideration.

Person responsible to deduct levy

Unlike in the case of equalisation levy on advertisement services proposed in Finance Act, 2016, where the resident payer was responsible to deduct and pay the levy.

In this case, deduction of the levy is the responsibility of the e-commerce operator and is to be discharged by the operator itself.  Further, the levy has to be discharged on a quarterly basis.

Taxable Supplies

E-commerce supplies on which equalisation levy applies are:

  • Online sale of goods owned by the e-commerce operator;
  • Online provision of services provided by the e-commerce operator;
  • Online sale of goods or provision of goods facilitated by the e-commerce operator;
  • Any combination of the above

Applicability

The levy is applicable when the goods or services are provided/facilitated by the e-commerce operator to:

  • A person resident in India;
  • A non-resident (in respect of the sale of advertisements targeted at person resident in India or using an IP address in India);
  • A person who buys goods or services using an IP address located in India.

Exception

  • The non-resident e-commerce operator has a permanent establishment in India and the e-commerce supply or services are effectively connected to such permanent establishment;
  • The equalisation levy applicable as per Finance Act, 2016 on specified services (advertisement services);
  • The gross receipts/turnover of such non-resident e-commerce operators from online sales of goods or services is less than INR 2 crores in a year.

Due Date of payment

Non-resident e-commerce operator needs to pay equalisation levy within the following due dates:

Quarter closing date Due Date
30 June 7 July
30 September 7 October
31 December 7 January
31 March 31 March

Default in payment of a levy

Simple interest at the rate of 1% per month or part month will be imposed on late payments, and failure to pay the levy will incur a penalty equivalent to the amount of the levy.

Reporting of transactions

An Annual Statement in Form-1 to be furnished to the tax authorities (Income-tax portal) on or before 30th June of the subsequent financial year.

Revision or Late Submission of Statement

If a taxpayer failed to furnish a statement within the timelines specified or had furnished incorrect and now wants to revise the statement, the same can be uploaded (belated or revised) statement at any time before the expiry of 2 years from the end of the financial year in which specified services were rendered.

Penalty for default in the furnishing of statement

If a taxpayer fails to furnish the statement within the prescribed time, he has to pay a penalty of INR 100 per day till the default continues.

  • Reporting of Investment

Moving further, e-commerce is operating over the digital network and deals with various products. Therefore, in order to establish e-commerce, heavy funding is required.

Now, there is a reporting requirement under Income-tax which reports such high-value transactions. The taxpayer needs to furnish a Statement of Financial Transactions (‘SFT”) in a prescribed Form 61A to report specified financial transactions.

Let’s understand this in detail.

Requirement of SFT

In order to keep a watch on high-value transactions done by taxpayers, the Income-tax has instructed taxpayers that SFT be furnished in Form 61A under Section 285BA of Income-tax Act, 1961 (“IT Act”).

Transactions to be reported

Specified financial transactions means, any of the following:

  • Sale, purchase or exchange of goods, right, property, or interest in any property;
    • Works contract;
    • Delivering services;
    • Any investment or expenditure;
    • Accepting any deposit or taking any loan.

It is important to note that CBDT can recommend different values with respect to different transactions for different persons by considering the nature of the transactions. We are not listing down the limits here but you can refer to Rule 114E of the Income-tax Rules, 1962.

Due Date

SFT in Form 61A needs to be furnished within 31st May every year for the previous financial year.

Penalty for non-furnishing of Form 61A

In case the assessee is not able to file SFT within the due date, the authorities would issue a notice, demanding the assessee to submit the form within 30 days from the issuance of such notice. In case such assessee continues to be the assessee in default by not answering to such notice, a penalty would be levied on the assessee that would amount to INR 500/day of such default. This penalty would be calculated from the expiry of the period as stipulated in such notice.

Consequences of filing inaccurate SFT

If the taxpayer discovers any inaccuracy or discrepancy in the information provided in Form 61A then he shall get in touch with the concerned income-tax authority within 10 days to make a correction without any penalties.

Penalty of Rs 50,000 will be levied on the taxpayer if it provides inaccurate information in the statement where:

  • inaccuracy is due to a failure to comply with the prescribed due diligence requirement or is deliberate on the part of that person; or
    • the person knows of the inaccuracy at the time of furnishing the statement of financial transaction or reportable account, but does not inform the prescribed income-tax authority or such other authority or agency; or
    • the person discovers the inaccuracy after the statement of financial transaction or reportable account is furnished and fails to inform and furnish correct information within 10 days as mentioned above

Disclaimer 

The above document has been prepared to portray the simple understanding of the provisions attached with the operation of e-commerce. We have considered only the material and relevant things in this document that generally ignored by the e-commerce operators and the associated participants. This document shall not be considered as the final and overall interpretation of all laws and regulations applicable to e-commerce transactions. The provisions of this document may be subject to change/ amendment as per the revision/ update of the laws.

Further, the para/ provision of the laws mentioned in the document shall be strictly applied with consultancy/ under the guidance of the professionals.

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