Tax implications on Online Transactions Explained- Paytm, UPI, etc

In an increasingly digital world, online transactions have now become an everyday affair. Online shopping has picked up across India and people are now used to paying via their digital wallet apps. Access to Unified Payments Interface (UPI) helps in the smooth transfer of funds between two bank accounts. However, what does online shopping and taxation of e-commerce in India entail?

As a consumer

When you use digital wallets and receive cashbacks, the total value of the amount received without consideration doesn’t exceed Rs 50,000, you wouldn’t have to pay taxes. When you receive money in your e-wallet via payment apps, such receipts of up to Rs 50,000 are tax exempt. But if it exceeds this ceiling, and higher amounts are transferred via say your Paytm or other UPI-based apps, it is subject to tax.

Taxation of e-commerce in India: Aspects to consider

A key aspect of taxation of e-commerce in India is to understand what GST is all about. GST is goods and services tax (GST) that is levied on the supply of goods and services. It is an indirect tax and has replaced other taxes such as service tax, value-added tax or excise duty. It is a multi-stage system that is destination-based.

Any trader or dealer who sells goods or services online would need to get themselves registered under the GST regime. This is even if their turnover is lower than Rs 20 lakh so that they can claim the tax deducted by the e-commerce platform or an aggregator.

As per the GST regime, tax is applicable at each point of sale. There are three taxes to keep track of when you are selling through e-commerce portal under GST.  They include CGST, which is collected by the Centre on sales that happen within a state, SGST, which is the tax collected by the state government on sales happening within a state and IGST, which is the tax collected by the Centre for inter-state sales, ie, sales happening between states. In the context of sales within the state, the new GST regime would mean the application of CGST and SGST, wherein revenues are split equally between the state and the centre.

GST is the tax levied at the point of consumption and not at the point of origin. It is a tax based on the destination of the product or service — so if you are shopping via a seller online, the place of supply would be the place where the product or service is delivered or received. This is in situations where the shipping address and the billing addresses are the same.

In a situation where the seller is sending a product or service to someone else, ie, where the shipping address is not the same as the billing address, then the assumption made is that the buyer has received the product and the destination of supply is at the buyer’s location.

Selling through e-commerce portal under GST: Examples

So, if person A has ordered a product on an e-commerce platform from Chennai and the seller is in Coimbatore, the location of supply and supplier is Tamil Nadu, so CGST and SGST will be applicable.

If person B has ordered a mobile phone from his home in Chennai and the seller is in Bangalore, Karnataka, the place of supply and supplier is inter-state, so, IGST is charged.

If person C of Mumbai, Maharashtra orders a product to be delivered to his friend in Bangalore, and the online seller is registered in Ahmedabad, Gujarat, then it is assumed that the buyer is in Maharashtra, place of supply is therefore also Maharashtra while the location of supplier is Gujarat. Therefore, the GST that is applicable is IGST.

What is TCS in the context of GST?

The tax collected at source or TCS is applicable under GST wherein a tax is collected by an e-commerce operator on behalf of the goods/services supplier who makes supplies via the operator’s platform online. The TCS is collected as a percentage of the overall taxable supplies.

According to  CGST Act, 2017, electronic commerce has been defined as the “supply of goods or services, or both, including digital products over digital or electronic networks.” An e-commerce operator, according to the Act, is any person who owns, operators, manages a digital or electronic facility or platform for electronic commerce.

So, who can collect TCS?

Tax can be collected at source by operators who own and run an e-commerce platform. The TCS is applicable only if the operator collects the consideration from customers on the supplier or vendor’s behalf. So, when an e-commerce operator pays the consideration collected to vendors, they would have to cut a percentage that is known as TCS and pay the amount. If you don’t own, operate or run an e-commerce platform, you have no TCS liability.

If you are a dealer or a trader who supplies goods/services on an e-commerce platform provided by an operator, you will get paid only after TCS is deducted at the rate of 1 per cent.

GST issues in e-commerce

One of the common GST issues in e-commerce revolves around when TCS should be collected and when to deposit the same to the government. TCS will be cut in the month in which supply is made and deposited within ten days from the end of the month of supply to the government. SGST should be paid to the state government while IGST and CGST to central governments. This may lead to confusion unless professional help is south.  Also, some exceptions to TCS provisions for services by an e-commerce platform include hotel accommodation, clubs, transport of passengers, for instance, cabs or bikes, housekeeping services. These exceptions could be cause for confusion unless a tax consultant is hired for greater clarity and compliance. Also, the many GST returns forms and the last dates for filing returns vary, which may again require professional help.

What are the benefits of GST to e-commerce?

The introduction of GST can be seen as a positive for the e-commerce sector as it helps in solving many issues pertaining to the supply chain.

The uniform structure helps in the calculation of prices and margins without having to be concerned about where the product is getting shipped. Before the GST regime, there were different structures in different states which led to confusion particularly for the e-commerce sector as it transcends geographical barriers. Online marketplaces and platforms benefit from uniformity in taxation.

The GST structure removes cascading tax effect, which is essentially described as ‘tax on tax’, actually increasing the cost. So, if the cost of manufacturing is Rs 100 and the excise on it is Rs 12, the bill will be 112 at the time of selling and the VAT is charged on the bill, which increases the cost. This happens because there is no input tax credit. In the GST However, the availability of ITC means the final price is lowered.

Also, the consumer who has shopped online is better informed as the GST can be easily cracked rather than track multiple taxes at various stages including VAT, excise duty, cesses etc.

Conclusion

GST has ensured that shopping via an e-commerce platform actually makes a product or service cost lower than the earlier regime for the end consumer. It also lowers cascading tax impact and brings in much-needed tax uniformity.