Starting an e-commerce firm requires undergoing numerous procedures before you can even think of starting operations. The various forms of taxation are one of the biggest hurdles which people face, both in understanding and execution. In the middle of the year, the government rolled out the Goods & Services Tax which has resulted in the implementation of a completely different form of tax compliance. Keep in mind that failure to comply with taxes is a major issue and one which has to be resolved at the very beginning. Here, we take you through the various taxation processes and types involved in the process of creating and running an e-commerce website.
1) Compulsory Registration
To put it briefly, the Goods & Services Tax (GST) implies a uniform taxation process. There are four major tax slabs: 5%, 12%, 18% and 28%. The government has created a Harmonised System of Nomenclature (HSN) which helps put a product under a particular tax slab. This has removed all arbitrariness of the previous VAT regime and has presented a more structured format of taxation. As far as traditional businesses are concerned, any entity having an annual turnover of under Rs 20 Lakh will be exempt from GST. This is not true for E-Commerce firms. Everyone will have to file for GST and pay GST according to the products which they are selling. The rates can be found out through the HSN and SAC of the product.
2) 1% Tax Collected At Source
Under the new GST regime, e-commerce firms will have to collect 1% tax on source (Tax Collected on Source or TCS) from their sellers. This is a tax which will be initially deducted to ensure that all e-commerce sellers pay a tax and do not operate for free and take benefits. It will ensure that no one takes undue advantage of the lack of a formalized e-commerce legal structure in the country. However, this 1% tax will be a heavy burden to bear for small traders who are constantly trying to save as much as possible. The cost of making it a level playing field will harm those who are at the lower rungs of the ladder.
3) Detailed Return of Filings
Filing returns have undergone a drastic change since the implementation of GST. Under the new regime, monthly returns filings made by e-commerce operators and merchants will have to include details of the HSN number and SAC (Service Accounting Code) of the goods or services sold by them in each state. This implies that sellers and firms will have to change their payment collection, generate invoices on behalf of merchants and prepare data for filing monthly GST returns. SAC codes are adopted by the Central Board of Excise and Customs for the identification of services.
4) Report Sales Through Online Channels
Another change when it comes to filing returns under the GST regime is that merchants will have to report sales through the online channel separately. Merchants selling online will have to declare their monthly sales done via different channels along with the GST Identification Number (GSTIN). As far as e-commerce platforms are concerned, they will have to provide sales & returns data alongside merchant details in their filing. This implies a constant matching of both seller and platform accounts.
The new GST regime is certainly more cumbersome and hurts the capital. However, its strength lies in the fact that it has increased transparency and has attempted to create a level playing field.