Under the GST law, on the supply of certain services (as notified by the GST Council), the tax is liable to be paid by an eCommerce operator and not the person supplying the service. On a basic level, the GST paid by the eCommerce operator remains the same compared to other modes of supply. However, a few special provisions apply to eCommerce operators and suppliers selling their goods or services via the eCommerce portal. What are these services that eCommerce operators need to pay tax for? Well, before we look at those, let’s begin with understanding “what is eCommerce?” and “who is an eCommerce operator?”.
A] What is eCommerce?
eCommerce refers to buying & selling of goods and services over the internet. It is a business model that not only allows companies but also individuals to buy/sell their goods/services online. Thanks to eCommerce portals like Amazon, Swiggy and Flipkart, nearly all products and services are just a click away, including books, electronics, household appliances, ready-to-eat food, clothes, accessories, and many more.
eCommerce can be classified into three categories:
- Business-to-Business (B2B): Here, the transaction is between two businesses. Alibaba, Udaan, and Indiamart are some of the most prominent B2B examples.
- Business-to-Consumer (B2C): Targeting customers online has become much simpler owing to technology. As the name implies, in B2C, the process of buying and selling is between the business and consumers/customers. Examples of this category are Amazon, Walmart, Spotify, and Netflix.
- Consumer-to-Consumer (C2C): Consumer-to-Consumer deals with online transactions between one customer and another. It is an innovative method that lets customers interact by using a third party. Quikr, OLX, and eBay are a few examples of C2C.
B] Who is an eCommerce Operator?
An eCommerce operator is any person or business entity that owns, operates, or manages a digital facility or an eCommerce platform. The owned eCommerce platform is then provided to other sellers to sell/list their goods and services. Amazon, Flipkart, Ola, Uber, and Swiggy are a few examples of the same.
For instance, let’s consider OLA and Uber. In both cases, the service provider is connected to the app and the service is provided to their customers via the app. This makes OLA and Uber eCommerce operators.
C] Types of Transactions
eCommerce transactions involve three parties: the seller, the buyer, and the eCommerce operator (ECO). While the two types of transactions are between the:
- Seller and Buyer: Regarding the sale of goods, the eCommerce GST rate levied on the entire value of goods or services supplied shall be paid by the supplier except for the services listed under section 9(5).
- Seller and ECO: It deals with the provisions of the marketplace. The GST levied on commission value or other earned by the eCommerce operator for providing a platform for the seller to sell his goods/services shall be paid by the ECO itself.
GST Registration Process
- Irrespective of the turnover, every eCommerce operator must register according to the provisions of section 24(x) of the CGST Act, 2017. This registration is separate from (and in addition to the GST registration) obtained as a regular supplier.
- Under section 22(1) of the CGST Act, registration is mandatory for a supplier of goods or services (or both) having an aggregated turnover exceeding 20 lacs.
- eCommerce operators under GST need to have a GST registration in each state if their suppliers are from different states.
- The registration may be granted by an authorised representative after due verification. They’ll issue a registration certificate in form GST REG-06 within three working days.
- You can cancel the registration after notice, enquiry, and hearing, which shall be communicated to the said person in form GST REG-08 as per CGST rule 12(3).
Further reading: Difference Between DSC, E-sign and EVC in a GST Portal
D] Services for which eCommerce Operator has to Pay Taxes
Below are the services on which an eCommerce operator has to pay tax as notified by the GST Council.
- Transport of passengers by a radio-taxi, motor cab, maxi cab, and motorcycle
- Accommodation in hotels, inns, guest houses, clubs, campsites, or other commercial places meant for residential or lodging purposes, except where the supplier is liable for registration.
- Services by way of housekeeping, such as plumbing, carpentering etc, except who is liable for registration
Example: Certain cab aggregators like Ola Cabs or Uber offer a platform where cab drivers can register and provide transportation services. On supply of the transportation services by cab drivers, the operator is liable to pay tax, not the cab driver.
Example: Accommodation aggregators like Oyo Rooms or Airbnb partner with hotels, guest houses to provide standardised accommodation services to customers. In these cases, if the hotel is liable for registration, such as a hotel chain whose turnover crosses the threshold limit, then the hotel has to pay the tax on the accommodation service provided. However, if the hotel is not liable for registration, the operator (Airbnb) has to pay the tax on the service.
Example: Urbanclap is a prominent brand that provides numerous housekeeping services such as cleaning & pest control, plumbing & carpentry, home painting, etc. Here, the company (Urbanclap) is liable for registration. On supply of these services, the company has to pay taxes.
Most eCommerce operators who provide the above services might not even have a physical presence in the State where the transport or accommodation service is provided. Their operations could be entirely through a mobile application or website. However, this cannot be a reason to not pay taxes that arise on account of the provision of these services.
- The Law clearly states that if an operator providing the above services does not have a physical presence in a State, any person representing the operator for any purpose will be liable to pay taxes.
- Further, if the eCommerce operator does not have a representative in the State, it should appoint a person to pay taxes.
As an eCommerce operator, it is important to note the tax liability may arise on account of the supply of transportation or accommodation services. As such, ensure appropriate measures for compliance are taken.