Paytm Payment Gateway: Unravelling GST for Online Businesses

Are you running an online business and have questions about GST (Goods and Services Tax) and its impact on your business? The following blog post will simplify your knowledge about GST:

What is GST?

GST is India's largest tax reform to date and is designed to replace all indirect taxes such as sales tax, service tax, value added tax (VAT), customs duty, central sales tax, entertainment tax, luxury goods tax, etc. GST is a "single indirect tax" on the supply of goods and services from the manufacturer to the final consumer across the country to achieve a unified market in India. The Indian market is harmonised. In the current scenario, the indirect tax system is extremely complex due to multiplicity of taxes, compliance issues and overlapping taxes.

How does GST affect e-commerce business?

Firstly, let us understand the definition of e-commerce and e-commerce operators in the context of GST: By "e-commerce", it is meant the supply of goods or services, including digital products sold through digital or electronic networks; (as per Section 2(44) of the CGST Act).

An "electronic commerce operator" is a person who owns, operates or manages a digital or electronic facility or platform for electronic commerce. In addition, a person who provides information or other services related to the supply of goods and services through an electronic platform will also be considered as an operator. (Under section 2(45) of the CGST Act).

Here are some real-life examples of how different online sellers will be affected by GST:

1. The seller supplies directly to the customer:

Sellers who have their own website and run their business independently and do not rely on other online aggregators for displaying their goods. In such cases, sellers are subject to Central GST (CGST)/State GST (SGST) for intra-state transactions and Integrated GST (IGST) for inter-state transactions.

For example, Rahul orders a book from bookshop.com. The online site is maintained by Bookshop, the seller, and Bookshop invoices the book and levies GST.

2. Supply to customers through online aggregators/intermediaries:

The seller's products are displayed on the aggregator's website. These orders are then shipped by the seller. In this case, the seller is required to issue an invoice and deliver the goods directly to the customer. The invoice needs to contain information such as company/business name, registered address, TIN/CST number, etc.

For example, Mr. Rohan orders the latest mobile phone from an online aggregator. The aggregator will place the order on behalf of the seller XYZ retailer. Therefore, the aggregator will ask retailer XYZ to ship the goods directly to the customer. In this case, Seller XYZ is required to levy GST on the item.The aggregator will invoice and charge GST based on the services provided to the seller (e.g. courier, shipping, booking, commission, etc.).

3. Sellers supply the online portal to customers:

Online portals buy goods from sellers and then sell those goods to end customers, i.e. the portal needs to buy inventory. The role of an e-commerce site is not limited to providing an interface, but also includes being the owner of the goods.

Example: Mr. Sourabh orders portable speakers from the online website ABC, which will place the order and purchase the goods from Shashi Electronics for delivery to the customer. The invoice for the speaker will be issued by Shashi Electronics, including the TIN number and sent to the website ABC, which will then invoice the customer.

Which businesses need to be GST compliant?

The following types of businesses need to be registered:

- Any enterprise exceeding the threshold limit

- Existing enterprises registered with central (excise/service tax) or state (VAT) tax authorities

- Taxpayers making interstate supplies

- Enterprises subject to reverse taxation under GST

- Businesses that want to collect GST or claim input tax credits (albeit below the threshold) can opt for voluntary registration

How do I comply?

Registration process for new sellers:

Sellers are required to complete the registration application within 30 days of exceeding the prescribed thresholds/commencement of business. In such cases, the date of application will be considered as the effective date of registration for obtaining Input Tax Credit (ITC).

Registration process for existing sellers:

All sellers registered with central or state tax authorities will be migrated to GST by default and assigned a Goods and Services Tax Identification Number (GSTIN). Sellers below the threshold will have the option to remain registered and enjoy the benefits of the GST credit chain or opt out.

GSTIN:

This is a PAN-based 15-digit number with state code and business vertical details:

State codes: based on the 2011 Census of India. For example: 27 for Maharashtra and 29 for Karnataka.

Entity Code: alphanumeric from 1 to 9 and A to Z based on the number of business verticals in the state for the same PAN (i.e., 9 digits plus 26 characters, with a maximum of 35 possible business verticals per state).

You can read this blog post on the impact of GST on online businesses. Stay tuned to PayUmoney blog for more updates and insights.