With the expansion of information and communication technology, the supply and procurement of digital goods and services have undergone exponential expansion everywhere, including India. Today is the Era of E-commerce which is significantly growing faster than the global economy as a whole.
E-commerce (electronic commerce) is the activity of electronically buying or selling of goods or provision of products on online services or over the Internet through digital or electronic facility or platform. Some renowned e-commerce examples in India are Amazon, Flipkart, Myntra, Paytm, Zomato, Swiggy etc.
The E-commerce business models have created new tax challenges. The typical direct tax issues relating to e-commerce are the difficulties of characterizing the nature of payment and establishing a nexus or link between a taxable transaction, activity and a taxing jurisdiction, the difficulty of locating the transaction, activity and identifying the taxpayer for income tax purposes.
Considering the growing numbers of e-commerce transactions and entities, Government of India has recently brought in certain provisions in the Income tax Act, 1961 (‘Act’) to tax such E-commerce transactions. Such provisions which were introduced through Finance Act, 2016 (FA 2016) and Finance Act, 2020 (FA 2020) are explained in brief herein below:
PROVISIONS UNDER INCOME TAX ACT FOR E-COMMERCE TRANSCTION
A. Equalization Levy:
Levy on online Advertisement Services provided by Non Residents:
Equalization Levy was first introduced by Finance Act, 2016 and is governed by the provisions Chapter VIII to Finance Act – “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 by inserting clause 50 under section 10 to the Act.
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;
- Any provision for digital advertising space or any facility or service for the purpose of online advertisement;
- Any other service as maybe notified by Central Government.
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 rupees
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 to include consideration received or receivable by an e-commerce operator from e-commerce supply or services made or facilitated by it to:
- a person resident in India; or
- a person using IP address in India; or
- a non-resident in following specified circumstances:
- sale of advertisement, which targets a customer, who is resident in India or a customer who accesses the advertisement through IP located in India;
- sale of data, collected from a person who is resident in India or from a person who uses IP address located in India;
The rate of such levy will be 2% and will be applicable on and from 1st April 2020. Consequential amendment is done in Sec. 10(50) to provide that income arising from e-commerce supply or services chargeable to Equalisation levy would be exempt from income tax.
Following are the important terms defined in Section 164 of Finance Act 2016 which needs to be understood:
- E-commerce supply or services means:
(i) online sale of goods owned by the e-commerce operator; or
(ii) online provision of services provided by the e-commerce operator; or
(iii) online sale of goods or provision of services or both, facilitated by the e-commerce operator; or
(iv) any combination of activities listed in clause (i), (ii) or clause (iii);
- E-commerce operator means a non-resident who owns, operates or manages digital or electronic facility or platform for online sale of goods or online provision of services or both;
The equalisation levy shall on e-commerce transaction shall not be charged in the following cases:
(i) 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
(ii) where the equalisation levy is leviable under section 165 of the Finance Act 2016 being equalisation levy on online advertisement services; or
(iii) 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:
B. TDS on E Commerce Transaction under Section 194-O of the Act:
E-Commerce operators, at the time of credit of the amount of sale of goods, services or both to the account of an e-commerce participant or at the time of making payment to an e-Commerce participant by any other mode, whichever is earlier, deduct TDS @1% of gross amount of sale or services or both. The said provisions are effective from 01st October 2020.
Following are the important terms defined in Section 194-O of the Act which needs to be understood:
- E-Commerce means the supply of goods or services or both, including digital products, over digital or electronic network;
- E-commerce operator means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce;
- E-commerce participant means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce;
Following important points needs to be kept in mind for the purposes of Section 194-O of the Act:
- 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;
- No deduction to be made by e-commerce operator under Section 194-O of the Act, if the following conditions are satisfied:
E-commerce participant is an individual/ HUF; and
Gross amount of sale of goods or provisions of services or both during the year does not exceed Rs. 5 lakhs; and
E-commerce participant has furnished his PAN or Aadhar number to the E-commerce operator;
- If TDS has been deducted in respect of a transaction under Section 194-O of the Act, then, TDS shall not be deducted under any Section of Chapter XVII-B of the Act on such transaction. However, TDS provisions shall continue to apply on amount received/ receivable by e-commerce operator for hosting advertisements or providing any other services not covered under this Section.
- For the purpose of Section 194-O of the Act, e-commerce operator shall be deemed to be the person responsible for paying to e-commerce participant.
PROVISIONS UNDER GST FOR E-COMMERCE TRANSACTION
Apart from the above provisions under Income Tax Act, E-commerce transaction are taxable under GST regime as under:
Registration Provisions for e-commerce operator
As per Section 24 of the CGST Act, E-commerce operators are required to get mandatorily registered under GST irrespective of the Turnover in the following Cases:
- person who are required to pay tax under sub-section (5) of section 9 (Section 24(iv));
- every electronic commerce operator who is required to collect tax at source under section 52 (Section 24(x);
Where an electronic commerce operator does not have a physical presence in the taxable territory, then any person representing him for any purpose in the taxable territory shall be liable to pay tax, and if he neither have a physical presence in the taxable territory nor have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.
Section 9(5) of the CGST Act (corresponding Section 5(5) of the IGST ACT)
The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:
Specified Services under Section 9(5) of the CGST Act:
|Supplier of Service
|Person Liable to pay GST
|Effective Date of Notification
|Services by way of transportation of passengers by a radio-taxi, motorcab, maxicab and motor cycle;
|Notification No. 17/2017-Central Tax (Rate)
Dated 28th June’2017
|Services by way of providing accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes,
|Any person except who is liable for registration under sub-section (1) of section 22 of the said CGST Act i.e. whose turnover exceeds the Threshold limit.
|Notification No. 17/2017-Central Tax (Rate)
Dated 28th June’2017
|Services by way of house-keeping, such as plumbing, carpentering etc.
|Any person except who is liable for registration under sub-section (1) of section 22 of the said CGST Act
|Notification No. 23/2017-Central Tax(Rate) dated 22nd Aug, 2017
TCS on E-commerce transaction under GST regime
As per Section 52 of CGST Act, 2017, every e-commerce operator, not being an agent, shall collect TCS at such rate not exceeding 1% (0.5% each under CGST & SGST and 1% in case of IGST) of the net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator.
Every operator who collects the amount shall furnish a statement, electronically, in Form GSTR-8, containing the details of outward supplies of goods or services or both, effected through it, including the supplies of goods or services or both returned through it, and the amount collected under sub-section (1) during a month, in such form and manner as may be prescribed, within ten days after the end of such month.
Following are the important terms defined in CGST Act, 2017 related to e-commerce which needs to be understood:
- E-commerce means the supply of goods or services or both, including digital products over digital or electronic network;
- E-commerce operator means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce;
- Net value of taxable supplies shall mean the aggregate value of taxable supplies of goods or services or both, other than services notified under sub-section (5) of section 9, made during any month by all registered persons through the operator reduced by the aggregate value of taxable supplies returned to the suppliers during the said month
This document has been prepared in summary form by us from sources believed to be reliable based on Income Tax Act, 1961 (as amended by FA 2020), Finance Act, 2016 along with explanatory memorandum and CGST Act, 2017 and IGST Act, 2017. For further details, please refer the relevant acts and related rules. The information contained herein is intended only for the person to whom it is sent. While the information is believed to be accurate to the best of our knowledge, we do not make any representations or warranties, express or implied, as to the accuracy or completeness of such information. Recipients should conduct and rely upon their own examination, investigation and analysis and are advised to seek their own professional advice. The information and data contained herein is not a substitute for the recipient’s independent evaluation and analysis. This document is not an offer, invitation, advice or solicitation of any kind. We accept no responsibility for any errors it may contain, whether caused by negligence or otherwise or for any loss, howsoever caused or sustained, by the person who relies on it.