What is GST?

GST is short for Goods and Services Tax, which is an indirect tax levied on the supply of goods and services. GST replaces multiple indirect taxes like VAT, excise duty, service taxes, etc. Goods and services tax is a multi-stage, destination-oriented, comprehensive tax imposed on every value addition. 

GST has three components:

Central GST (CGST) – Central GST is applicable to the intrastate supply of goods and services. CGST is levied by the central government.

State GST (SGST) – SGST is also levied on the intrastate sale and purchase of goods and services and collected by State Governments.

Integrated GST (IGST) – Central Government levies IGST on the inter-state sale and purchase of goods and services.

Furthermore, the GST council has defined four tax slabs of 5%, 12%, 18%, and 28% for over 1300 goods and services.

What is GST for Ecommerce?

It is mandatory for all e-commerce operators in India (whether they are selling goods and services directly to the end customers or are functioning as e-Commerce aggregators) to register under GST.  Every ecommerce operator, irrespective of their sales turnover has to register for GST either prior to starting a business or within 30 days of commencing business. 

By definition, ecommerce covers not only ecommerce websites but any kind of supply or receipt of goods and/ or services, or transmitting of funds or data, over a digital/electronic network. Ecommerce can be done using shopping carts, emails, instant messaging services, web services, FTP, Universal Description Discovery and Integration (UDDI), Electronic Data Interchange (EDI) etc. 

The payment for ecommerce based goods and services can be done digitally or offline.  The goods and services purchased via ecommerce are finally delivered by the operator or any other service provider.

How is ecommerce GST decided for different products and services sold online?

GST is basically a destination based tax. To put it simply, where any merchants are selling their goods is not important, where are goods are going to is important. Also, taxes depend on the online selling model.   

Direct sales

When a business sells its own products or services through its own website, it must follow the standard GST rules. 

Selling through eCommerce Aggregators (for example, Amazon, Flipkart, Zomato etc.) 

Under the Section 52 of the CGST Act, e-commerce aggregators are required to collect and deposit 1%  (0.5% CGST + 0.5% SGST) on each transaction. Any seller/dealer selling their goods and services on ecommerce aggregator platforms would get the payment after a deduction of 1% tax. 

GST For Ecommerce Use Cases

Case 1: Intra-State Sales

Direct from ecommerce website

Varun from Nasik, orders an earphone from the website Gadget Hub. GST of Gadget Hub is registered in Mumbai, Maharashtra. Since the place of supply ( where the order has to be delivered) is the same state as that of the supplier state, CGST and SGST will be levied. 

Selling through an ecommerce aggregator

Varun from Nasik, orders an earphone from Flipkart. The seller Zen Gadget is located in Nagpur, Maharashtra. Both the place of supply (where the order has to be delivered) and place of origin are in the same state as that of the supplier state, CGST and SGST will be levied.

Additionally, Flipkart deducts 1% GST from the net value of the goods supplied by the seller Zen Gadget. The 1% tax collected by Flipkart shall be credited to the cash ledger of the supplier Zen Gadget who has supplied the earphones through Flipkart. Zen Gadget can claim TCS for the 1% tax collected by Flipkart. (Source: CBIC)

Case 2: Inter-State Sales

Direct from ecommerce website

Varun from Nasik, orders a phone cover from the website Millenium Store in Bengaluru, Karnataka. Since the location of the seller ( Bengaluru ), is a different State from the place of supply (Nasik) IGST will be levied. 

Selling through an ecommerce aggregator

Varun from Nasik, orders a phone cover from Amazon. The seller Xylo Store is located in Mangaluru, Karnataka. The seller's location Mangaluru is not in the same state as the buyer's state Maharashtra. Hence IGST will be levied in this case.

Additionally, Amazon deducts 1% GST from the net value of the phone cover supplied by the seller Xylo Store. The 1% tax collected by Amazon shall be credited to the cash ledger of the supplier Xylo Store who has supplied the phone cover through Amazon. Xylo Store can claim TCS for the 1% tax collected by Amazon.

Case 3: Sending an online product to a third party

Direct from ecommerce website

Varun from Nasik, orders a phone cover from the website Millenium Store in Bengaluru, Karnataka, to be delivered to his friend in Delhi as a gift. The Millenium Store is registered in Bengaluru, Karnataka and it processes the order and sends it to Delhi. In this transaction, it will be assumed that Varun from Nasik has received the order even though the order is actually delivered to someone in Delhi.

Here, the place of supply (Nasik, Maharashtra, from where the order was originally placed) is a different state from the location of the seller's business ( Bengaluru, Karnataka). Hence, IGST will be applicable.

Selling through an ecommerce aggregator

Varun from Nasik, orders a phone cover from Amazon for his friend living in Delhi. The seller Crafty Store is registered in Ranchi, Jharkhand. Crafty Store processes the order and sends it to Delhi. For this transaction, despite the actual delivery being done in Delhi, it will be assumed that the customer Varun has received his order in Nasik. The seller's location Mangaluru is not in the same state as the buyer's state Maharashtra. Hence IGST will be levied in this case.

Here, the place of supply is Nasik, Maharashtra as the order was placed by Varun. Maharashtra is a different state from the Jharkhand where Crafty Store is registered. Hence, IGST will be applicable for this order.

Additionally, Amazon deducts 1% GST from the net value of the phone cover sold by the seller Crafty Store. The 1% tax collected from Crafty Store by Amazon shall be credited to  Crafty Store’s cash ledger. Crafty Store can claim TCS for the 1% tax collected by Amazon.

Case 4: Selling Digital Goods 

Selling digital goods (like eBooks) online is treated as services

Direct from ecommerce website

Varun from Nasik ordered a Quantitative Aptitude eBook from the online book store Mega Minds registered in Bengaluru, Karnataka. Since the business’s location (Bengaluru), is a different state from Nasik (Maharashtra) IGST will be levied. 

Selling digital goods through an ecommerce aggregator

Varun from Nasik, orders an English Comprehension eBook from Amazon. The seller WinIt Books is located in Mangaluru, Karnataka. The seller's location Mangaluru in Karnataka is different from the buyer's location Nasik in Maharashtra. Hence IGST will be levied in this case.

Additionally, Amazon deducts 1% GST from the net value of the eBook supplied by the seller WinIt Books. The 1% tax collected by Amazon shall be credited to the cash ledger of the supplier WinIt Books who delivered the eBook through Amazon. WinIt Books can claim TCS for the 1% tax collected by Amazon.

Why understanding GST for ecommerce is important for online brands?

GST is a mandatory tax and all businesses whether offline or online need to comply with the tax rules and slabs decided by the government of India. Online businesses need to have an automated way of calculating GST and other taxes to comply with the tax laws of the country.

StoreHippo offers a powerful tax engine to its merchant clients with full support for e commerce GST.  The merchant clients can easily add different tax slabs for IGST, CGST and SGST and automate their tax calculations and deductions.

With support for multi-level taxes, group taxes and GST StoreHippo offers an impactful tool to online brands looking for streamlined tax compliance.