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How GST Affects E-Commerce Exports in India

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By Sandipan Mitra
8 min read

How GST Affects E-Commerce Exports in India

Key Takeaways

  • GST has significantly streamlined the tax framework for e-commerce in India, replacing multiple indirect taxes with a unified system.
  • E-commerce sellers, irrespective of their size, must navigate various GST categories like CGST, SGST, IGST, and UTGST, depending on the nature and location of their transactions.
  • The place of supply rules under GST are crucial for e-commerce transactions, affecting how taxes are applied and ensuring compliance.
  • E-commerce platforms are mandated to collect TCS, enhancing transparency and compliance in the digital marketplace.
  • Merchant exports under GST are treated favorably with provisions like concessional rates and refund claims on input taxes, supporting India’s export competitiveness.

GST has significantly streamlined the tax framework for e-commerce in India, replacing multiple indirect taxes with a unified system. E-commerce sellers, irrespective of their size, must navigate various GST categories like CGST, SGST, IGST, and UTGST, depending on the nature and location of their transactions.

The place of supply rules under GST are crucial for e-commerce transactions, affecting how taxes are applied and ensuring compliance. E-commerce platforms are mandated to collect TCS, enhancing transparency and compliance in the digital marketplace.

Merchant exports under GST are treated favorably with provisions like concessional rates and refund claims on input taxes, supporting India’s export competitiveness.

The introduction of the Goods and Services Tax (GST) in India marked a dramatic shift, particularly in the e-commerce sector. Businesses in the digital sector have been significantly impacted by this comprehensive tax overhaul. It aimed to create a single market by absorbing multiple indirect levies. It is not only beneficial for e-commerce enterprises, particularly those who export goods and services, to understand the subtleties of GST; it is also required to ensure compliance and streamline operations.

The implementation of GST has ushered in a new era of tax compliance and financial planning for e-commerce activities. GST, with its promise of a streamlined tax framework, has highlighted a number of obstacles and opportunities for exporters. From negotiating the complexity of tax categories to exploiting tax benefits for overseas sales, e-commerce enterprises must walk carefully in this new tax environment.

Types of GST in E-Commerce

In the e-commerce space, the Goods and Services Tax (GST) in India is a critical component that businesses must work with precision. GST, a comprehensive, multi-stage, destination-based tax introduced on July 1, 2017, replaced many indirect taxes in India. For e-commerce operations, understanding the types of GST applicable is fundamental to ensuring compliance and optimizing output tax liability. Here’s a breakdown of the different types of GST that all e-commerce business encounter:

1. Central Goods and Services Tax (CGST)

CGST is the tax collected by the Central Government on an intra-state sale (e.g., within the same state). It is applied to the transaction value of the goods or services, and the revenue collected under CGST is for the central government. In the context of e-commerce, when a seller in one state sells to a customer within the same state, CGST is levied along with SGST.

2. State Goods and Services Tax (SGST)

SGST is the counterpart to CGST, collected by the state government on intra-state sales. This tax is applied concurrently with CGST on transactions within a single state, and the revenue is for the state where the transaction occurs. For e-commerce transactions within the same state, the total GST is divided equally between CGST and SGST.

3. Integrated Goods and Services Tax (IGST)

IGST is charged on inter-state transactions, where the seller and buyer are in different states, as well as on imports and exports. The revenue collected under IGST is shared between the central and state governments as per the rates specified. For e-commerce businesses, this means that when goods or services are sold from one state to another, IGST is applied, facilitating a seamless flow of tax credits from one state to another.

4. Union Territory Goods and Services Tax (UTGST)

Similar to SGST, UTGST is levied along with CGST on transactions within a Union Territory. It replaces the State GST in Union Territories without their own legislature. For e-commerce transactions occurring within Union Territories (like Chandigarh or Andaman and Nicobar Islands), UTGST and CGST are applied.

E-Commerce Seller Defined

In the context of India’s Goods and Services Tax (GST) framework, the definition of an e-commerce seller is pivotal for understanding tax obligations and compliance requirements. An e-commerce seller, broadly defined, is any individual or entity that sells goods or services through an electronic or digital platform. This encompasses a wide range of online business models, from large-scale e-commerce marketplaces to individual entrepreneurs leveraging digital platforms to reach their customers.

AspectDetails
Key Characteristics of an E-Commerce Seller 
Digital Platform UseOperates on an online marketplace or uses an electronic network (including social media platforms) to conduct transactions.
Goods and Services OfferingOffers a diverse range of products, including physical goods, digital products, and services, to consumers or other businesses.
Transactional NatureEngages in buying and selling activities over the internet, which can include cross-border transactions.
Types of E-Commerce Sellers 
Marketplace SellersUse established e-commerce platforms (like Amazon, Flipkart, etc.) to offer their products. The platform acts as an intermediary, facilitating transactions between buyers and sellers.
Direct SellersOperate their own websites or e-commerce platforms to sell directly to consumers or businesses, bypassing third-party marketplaces.
Social Media SellersUtilize social media networks or messaging apps to market and sell their products directly to consumers.

Supply Location in E-Commerce

The concept of “supply location” or “place of supply” holds significant importance. It determines the type of GST that applies to a particular transaction—Central GST (CGST), State GST (SGST), Integrated GST (IGST), or Union Territory GST (UTGST)—and thereby influences how taxes are collected and shared between different states or union territories. Understanding the place of supply is crucial for e-commerce sellers to ensure compliance with GST laws, accurately charge taxes, and claim the correct input tax credits.

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Determining the Place of Supply in E-Commerce Transactions:

  1. For Goods:
    • Within the Same State: If both the seller and the buyer are located within the same state, the transaction attracts CGST and SGST/UTGST. This is considered an intra-state supply.
    • Across State Lines: If the seller and buyer are in different states or a state and a union territory, the transaction is subject to IGST, indicating an inter-state supply.
  2. For Services:
    • The place of supply for services in e-commerce can be more complex and depends on specific scenarios, such as the location of the recipient, the nature of services provided, and whether the recipient is registered for GST.
    • Generally, for supply of services, the place of supply is where the recipient is located. However, exceptions exist, such as services related to immovable property, events, and transportation services, where the place of supply is determined by the location of the property, event, or destination/origin of goods, respectively.

Special Considerations for E-Commerce:

  • Location of the Buyer: In e-commerce, identifying the buyer’s location can sometimes be challenging due to the nature of online sale. Sellers must have mechanisms in place to accurately determine the location of their customers.
  • Registration Requirements: E-commerce operators need to be mindful of the GST registration requirements, which may necessitate registration in multiple states, especially if they are supplying goods or services deemed to be inter-state.
  • Tax Collection at Source (TCS): E-commerce platforms are required to collect TCS on the taxable supplies made through their platform by other sellers. The place of supply plays a crucial role in determining the applicable rate and the state to which the tax should be credited.

GST Registration for Sellers

gst registration for sellers

Under the Goods and Services Tax (GST) regime in India, GST registration is a critical compliance requirement for e-commerce sellers. This registration enables sellers to collect GST from their customers and avail of input tax credits on their purchases. Here’s what e-commerce sellers need to know about GST registration:

Who Needs to Register?

  • Threshold Limit: Businesses with an annual turnover exceeding Rs. 20 lakhs (Rs. 10 lakhs for North-Eastern and hill states) are required to register for GST. However, for e-commerce sellers, there is no threshold limit; they must register regardless of their annual turnover.
  • Inter-State Sales: Any seller engaged in inter-state supply of goods and services must register for GST.
  • Mandatory Registration: E-commerce operators and those who supply through them are mandatorily required to register under GST, irrespective of their turnover.

Process of Registration:

  1. Application: Sellers can apply for GST registration online through the GST portal. The process involves filling out the form GST REG-01 and submitting necessary documents.
  2. Documents Required: Basic documents include PAN card, proof of business registration, address proof of the place of business, bank account statements, and the authorized signatory’s photograph.
  3. Verification and Approval: Once the application is submitted, it undergoes verification by the GST officer. Upon successful verification, a unique GST Identification Number (GSTIN) is issued.

Benefits of GST Registration:

  • Legally recognized as a supplier of goods or services.
  • Proper accounting of taxes paid on the input goods or supply of services, which can be utilized at time of payment of GST due on supply of goods or services.
  • Authorization to collect tax from purchasers and pass on the credit of the taxes paid.

Filing GST Returns

Filing GST returns is a periodic activity that every registered seller must complete without fail. It involves providing detailed information about sales, purchases, tax collected on sales (output tax), and tax paid on purchases (input tax).

Types of Returns for E-Commerce Industry:

  1. GSTR-1: Details of outward supplies of taxable goods and/or sservices.
  2. GSTR-3B: Monthly summary return for outward supplies, input tax credit claimed, and net tax payable.
  3. GSTR-8: E-commerce operators are required to file this return, detailing the supplies effected through the e-commerce platform and the tax collected at source.

Filing Process:

  • Online Submission: Returns are filed online through the GST portal. Registered e-commerce Sellers must log in, fill in the required information, and submit the returns by the due dates.
  • Due Dates: It’s crucial to adhere to the filing deadlines to avoid penalties. For example, GSTR-1 is due on the 11th of the following month, and Form GSTR-3 B is due on the 20th of the following month.
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TCS in E-Commerce

Tax Collected at Source (TCS) is a mechanism under the Goods and Services Tax (GST) regime in India, specifically designed for the e-commerce industry. It mandates that e-commerce operators collect tax at a predetermined rate from the payments made to the registered e-commerce sellers on their platform. This provision is outlined under Section 52 of the CGST Act.

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Key Features of TCS in E-Commerce:

  • Rate of TCS: The rate of TCS is set at 1% (0.5% CGST + 0.5% SGST in case of intra-state supplies or 1% IGST in case of inter-state supplies).
  • Responsibility: The responsibility of collecting TCS lies with the e-commerce operator, not the individual sellers.
  • Deposit of TCS: The collected TCS must be deposited with the government by the 10th of the following month.
  • TCS Return: E-commerce operators are required to file a monthly return in Form GSTR-8 by the 10th of the following month, detailing all collections and deposits.

Implications for E-Commerce Sellers:

  • Registered e-commerce Sellers on e-commerce platforms will see a deduction of 1% from their receivables as TCS.
  • This mechanism ensures that transactions through e-commerce platforms are reported, and it aids in compliance tracking.
  • The E-commerce participant can claim the TCS amount as a credit in their GST returns, which can be used to pay their GST liability.

TDS in E-Commerce

Tax Deducted at Source (TDS) in the context of e-commerce industry is a provision where certain notified entities (such as government departments and agencies) are required to deduct a percentage of the payment as tax when making payments to suppliers for purchases made through e-commerce platforms. This is governed by Section 194-O of the Income Tax Act, which was introduced to enhance tax compliance and collection from e-commerce transactions.

Key Features of TDS in E-Commerce:

  • Rate of TDS: The rate of TDS under Section 194-O is 1% of the gross amount of sales or services or both.
  • Applicability: This provision applies to all sales of goods or provision of services facilitated through an e-commerce platform, irrespective of whether the e-commerce participant is the owner of the goods or services.
  • Threshold Limit: TDS is deducted only if the gross amount of sales or services supplied through the e-commerce operator during the financial year exceeds Rs. 5 lakhs.

Implications for E-Commerce Sellers:

  • Sellers need to be aware of the TDS deductions on their transactions and ensure that they are appropriately accounted for in their books.
  • The deducted TDS can be claimed as a tax credit by the seller while filing their income tax returns.
  • It is crucial for sellers to provide their PAN to the e-commerce operator; otherwise, TDS may be deducted at a higher rate of 5%.

What is E-way Bill?

The E-Way Bill, short for Electronic Way Bill, is a crucial component of the Goods and Services Tax (GST) system in India, designed to track the movement of goods across the country. It is a digital document generated on the GST portal, evidencing the movement of goods valued over Rs. 50,000. The requirement for an E-Way Bill applies to both inter-state (between states) and intra-state (within a state) transportation of goods.

To generate an E-Way Bill, the supplier or transporter of goods must provide detailed information online, including the nature of the goods, their value, the consignment’s origin and destination, and the transporter’s details. Once generated, the E-Way Bill generates a unique E-Way Bill Number (EBN) that is available to the supplier, recipient, and transporter, ensuring that all parties are aware of the consignment’s details and status.

The E-Way Bill system aims to curb tax evasion by ensuring that goods being transported comply with GST regulations. It simplifies the process of goods transportation, making it more efficient and transparent for businesses and tax authorities alike. Failure to comply with the E-Way Bill requirements can lead to penalties and confiscation of goods, highlighting the importance of understanding and adhering to these regulations for businesses involved in the transportation of goods.

Merchant Exports Overview

merchant exports under gst

Merchant exports play a pivotal role in expanding the global footprint of Indian goods and services. This trade mechanism involves the sale of goods by an Indian seller (the merchant exporter) to an overseas buyer. The process not only contributes significantly to India’s export volume but also brings in valuable foreign exchange, supporting the overall economic growth of the country. Under the Goods and Services Tax (GST) regime, merchant exports have been given special attention to ensure that Indian products remain competitive on the global stage and that the GST framework supports rather than hinders the export process.

Merchant exports under GST are treated with a nuanced approach to alleviate the tax burden on exporters and to streamline the export process. The framework aims to ensure that taxes do not add to the export costs, thereby making Indian goods more competitive internationally. Special provisions, including concessional rates and the possibility of claiming refunds on input taxes, have been established to support this sector. Understanding these provisions is crucial for exporters to maximize their benefits under the GST regime and to ensure compliance with the tax laws while engaging in international trade.

GST Provisions for Merchant Exports

The GST framework introduces specific provisions for merchant exports to alleviate the tax burden and facilitate smoother export operations. Key provisions include:

  • Concessional GST Rate: Merchant exports are subject to a concessional GST rate of 0.1% under IGST, provided the exporter furnishes a Letter of Undertaking (LUT) to the government, promising to fulfill all export obligations.
  • Zero Rated Supply: Exports, including merchant exports, are treated as zero-rated supplies. This means exporters can ship goods without paying GST at the time of export or can export under a bond or LUT without payment of IGST and claim a refund of the Input Tax Credit (ITC).
  • Input Tax Credit: Exporters engaged in merchant exports are eligible to claim ITC on the goods and services used to produce the exported goods. This ensures that the GST paid on inputs gets neutralized, making the pricing of exported goods more competitive.
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Refund Claims on Merchant Exports

One of the significant benefits for merchant exporters under the GST regime is the ability to claim refunds on the tax paid on inputs used in the manufacturing or procurement of exported goods. The process for claiming refunds is outlined as follows:

refund claims on merchant exports
  • Refund of IGST Paid on Exports: Exporters who pay IGST on exported goods can claim a refund of the tax paid directly. The shipping bill filed by the exporter serves as the refund application.
  • Refund of Input Tax Credit: For exports made under a bond or LUT without payment of IGST, exporters can claim a refund of the unutilized ITC. The refund amount is calculated as per the formula given in the GST rules, ensuring that exporters can recover the GST paid on inputs.
  • Application Process: The refund process is initiated by filing the relevant forms on the GST portal. Documentation includes proof of export, tax invoices, and details of the GST paid on inputs.
  • Time Limit: The GST law mandates a time limit within which the refund process should be completed, typically 60 days from the date of application, ensuring that exporters receive their refunds promptly.

The provisions for merchant exports under the GST regime are designed to support the export sector by minimizing the tax costs and simplifying the compliance requirements. By understanding and leveraging these provisions, merchant exporters can enhance their competitiveness in the global market while ensuring compliance with India’s tax laws.

FAQs

Is GST applicable for e-commerce?

Yes, GST is applicable to e-commerce transactions. All goods and services sold through electronic platforms are subject to GST. E-commerce operators are required to collect and remit GST on behalf of the sellers using their platform. This includes the obligation to collect tax at source (TCS) for transactions conducted through their portals.

What is selling through e-commerce portal under GST?

Selling through an e-commerce portal under GST involves transactions where goods or e-commerce services are bought and sold over an electronic network. Under GST, e-commerce operators must register, collect, and remit GST on sales made through their platforms. Additionally, they are required to deduct TCS at a prescribed rate on the net value of taxable supplies.

Is GST applicable for export?
 

Yes, GST is applicable on exports from India. However, exports are treated as zero-rated supplies under GST, meaning exporters can either supply goods or services under a bond or Letter of Undertaking (LUT) without paying GST or pay IGST and claim a refund. This ensures that products are not more expensive in international markets due to the tax burden.

Is there GST on shipping charges for e-commerce?

Yes, GST is applicable on shipping charges for e-commerce transactions. Shipping charges are considered part of the value of supply and are taxed at the same rate as the goods or services being shipped. This means if the goods or services are subject to GST, the shipping charges would also attract GST at the same rate.

What is 0.1% GST on exports?

The 0.1% GST rate on exports applies under a specific scheme for merchant exporters, allowing them to procure goods at a concessional GST rate of 0.1% for the purpose of export. This concessional rate is intended to reduce the tax burden on exporters and make Indian goods more competitive in the global market.

Is export under GST zero rated?
 

Yes, exports under GST are considered zero-rated supplies. This means exporters can export goods or services without paying GST on them. They have two options: either export under a bond or LUT without paying IGST and claim a refund of the input tax credit or pay IGST at the time of export and claim a refund of it.

What is proof of export under GST?

Proof of export under GST includes documents that substantiate the export of goods or services from India. These documents typically include a shipping bill or bill of export, along with a tax invoice. For services, a receipt of foreign exchange and a statement containing the number and date of invoices and the relevant Bank Realisation Certificates (BRCs) or Foreign Inward Remittance Certificates (FIRCs) serve as proof.

How do I claim GST refund on export?

To claim a GST refund on export, an exporter must file an application in Form GST RFD-01 through the GST portal, typically within two years from the date of export. The application should be accompanied by relevant documents, such as proof of export and details of the IGST paid on exported goods or services. The refund process involves verification by the GST authorities before the refund is sanctioned.

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