Taxation of E-Commerce Transactions in Income Tax & GST

E-commerce has developed dramatically in India, as more people purchase and sell products online as a result of cell phones and internet access. Previously, there was no defined handling of internet purchases under tax legislation. Moreover, GST has specific restrictions in place for e-commerce sites like Amazon and its vendors.  In this article, we will talk about the Taxation of E-Commerce Transactions in Income Tax.

Key Abstract

Given the expanding number of e-commerce transactions and companies, the Government of India has included provisions in the Income Tax Act, 1961 (‘Act’) to tax such transactions. Moreover, this article provides a concise explanation of the provisions implemented by the Finance Acts, 2016 (FA 2016) and 2020 (FA 2020).

E-Commerce

E-commerce (electronic commerce) is the action of purchasing or selling items or providing products electronically via online services or the Internet via a digital or electronic facility or platform. Amazon, Flipkart, Myntra, Paytm, Zomato, Swiggy, and other well-known Indian e-commerce examples include Amazon, Flipkart, Myntra, Paytm, Zomato, Swiggy, and others.

E-commerce company methods have introduced new tax issues. Moreover, the difficulties of characterizing the nature of payment and establishing a nexus or link between a taxable transaction, activity, and a taxing jurisdiction, as well as the difficulty of locating the transaction, activity, and identifying the taxpayer for income tax purposes, are typical direct tax issues relating to e-commerce.

Provisions Applicable

The provision for taxation of E-Commerce has two streams under Indian Laws. These two streams are as follows:

• Income Tax Act Provision For E-Commerce Transactions
• GST Regulations for E-Commerce Transaction

Income Tax Act 

Provisions under Income Tax Act, 1961 on E-Commerce Transaction are:

• Equalization Levy:Under this provision the following provisions are applicable

• Levy on Non-Residents’ Online Advertising Services: The Equalization Levy was first established by the Finance Act, 2016. Further, it is controlled by the provisions of Chapter VIII of the Finance Act – “Equalization Levy,” which allows for the taxation of digital transactions. The Equalisation Levy is a direct tax on the revenue of a Non-Resident E-Commerce Operator, although it is not the same as Income Tax. By introducing clause 50 under section 10 of the Act, every receipt subject to the equalization charge was thus deemed free from income tax.Initially, an equalization levy of 6% was levied on consideration received for the following defined services performed by a non-resident service provider under Chapter VIII of the Finance Act, 2016.

• •  Online advertising; 
  • Moreover, other provision for digital advertising space or any facility or service for the purpose of online advertising; 
  •  Any such service as specified by the Central Government..

  If the aggregate amount of consideration for specified service in a previous year exceeds one lakh rupees, every person, whether a resident carrying on business or profession or a non-resident having a permanent establishment in India, is liable to deduct the equalization levy at the rate of 6% from the amount paid or payable to a non-resident in respect of the specified service

• Extending the Scope of the Equalisation Levy to Ecommerce Transactions that involve the sale of products or the supply of services: The scope of the equalization levy is now increasing by making appropriate adjustments and establishing new provisions in Chapter VIII of the Finance Act, 2016 to include consideration received or receivable by an e-commerce operator from e-commerce supplies or services offered or enabled by it to:
  • a person who lives in India; or
  •   Further, an individual with an IP address in India; or
  • a non-resident under the following circumstances:
    • • the selling of advertisements that target customers who live in India or who view the advertisements via IP addresses in India;
      •  Moreover, the selling of data gathered from an Indian resident or from someone who uses an IP address in India.

  Such a charge will be levied at a rate of 2% and will go effective on April 1, 2020. Further, Section 10(50) is amended as a result to specify that income derived from e-commerce supplies or services subject to the Equalisation levy is excluded from income tax.

• Important terminology mentioned in Section 164 of the Finance Act 2016 that must be understood: There are two terms that need to be understood, these are:
  • E-commerce supply or services
  • E-commerce operator

  Let us discuss these terms one by one.

• E-commerce supply or services: The term “e-commerce supply or services” refers to:
  • Online sale of goods owned by the e-commerce operator; or 
  • Further, online provision of services provided by the e-commerce operator; or 
  • Moreover, online sale of goods or provision of services, or both, facilitated by the e-commerce operator; or 
  •  Any combination of the activities listed in clauses I (ii), or (iv) (iii).
• E-commerce operator: A non-resident who owns or maintains, manages a digital or electronic facility or platform for the online selling of products; the online supply of services, or both will act as an e-commerce operator.
  The equalization levy will not be paid on e-commerce transactions in the following circumstances:
  • when the e-commerce operator has a permanent operation in India and the e-commerce supply or services are effectively linking to such permanent establishment; or
  •  if the equalisation charge is levied under section 165 of the Finance Act 2016, such as the equalisation duty on online advertisement services; or
  • The e-commerce operator’s sales, turnover, or gross proceeds from e-commerce supplies or services made, delivered, or facilitated in the previous year were less than Rs. 2 crore.
• TDS on Electronic Commerce Transactions Pursuant to Section 194-O of the Act: E-commerce operators deduct TDS at 1% of the gross amount of sale or services or both when crediting the amount of sale of goods, services, or both to the account of an e-commerce participant or when making payment to an e-Commerce participant by any other channel, whichever is sooner. The aforementioned provisions will take effect on October 1, 2020.
  The following are the keywords in Section 194-O of the Act:
  • E-Commerce refers to the delivery of goods or services, or both, including digital items, over a digital or electronic network.
  • The E-commerce operator – A person who owns, runs, or maintains a digital or electronic facility or electronic commerce platform.
  • E-commerce participant – A person residing in India who sells things or provides services; or both, including digital items, using a digital or electronic facility or electronic commerce platform.

Important elements to keep in mind for the purposes of Section 194-O of the Act

Some important points to keep in mind are:

• Any payment made directly to an e-commerce participant by a purchaser of goods or a recipient of services for the sale of products or the supply of services, or both, enabled by the e-commerce operator is presumed to be paid by the e-commerce operator, and TDS is needed to be deducted.
•  E-commerce operators do not require to make a deduction under Section 194-O of the Act if the following requirements are met:
• The E-Commerce participant is a person or a HUF; 
• The gross value of sale of products or supply of services or both during the year does not exceed Rs.5 lakhs; and 
• Further, the E-Commerce participant has provided his PAN or Aadhar number to the e-commerce operator.
• Moreover, if TDS has been deducted in respect of a transaction under Section 194-O of the Act, TDS must not be deducted on such transaction under any Section of Chapter XVII-B of the Act. TDS requirements, on the other hand, will continue to apply to amounts received/received by an E-Commerce operator for hosting ads or providing any other services not covered by this Section.
• The E-Commerce operator is an imaginary person responsible for paying the E-Commerce participant for the purposes of Section 194-O of the Act.

GST Regulations 

Aside from the criteria given above in the Act, E-commerce transactions are taxed under the GST regime as follows:

• Taxation of E-Commerce Transactions in Income Tax- Provisions for E-Commerce Operator Registration: As per Section 24 of the CGST Act, E-commerce businesses are under obligation to get GST registration regardless of turnover in the following cases:
  • person liable to pay tax under Section 9 sub-section (5) (Section 24(iv));
  • Further, every internet commerce operator obligated to collect tax at the point of sale under Section 52 (Section 24) (x).

  If an electronic commerce operator does not have a physical presence in the taxable territory. Further, any person representing him for any purpose in the taxable territory shall be liable to pay tax, and if he neither has a physical presence nor a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax, and such person shall be liable to pay tax.

• Section 9(5) of the CGST Act (equivalent to Section 5(5) of the IGST Act): On the Council’s recommendation, the Government may, by notification, specify categories of services for which the tax on intra-State supplies shall be paid by the electronic commerce operator if such services are supplied through it. Further, all the provisions of this Act shall apply to such electronic commerce operator as if he were the supplier liable for paying the tax in relation to the supply of such services.

• Specific Services as defined under Section 9(5) of the CGST Act

• TCS on E-commerce Transactions in the GST Regime: According to Section 52 of the CGST Act, 2017, every e-commerce operator that is not an agent shall collect TCS at a rate not exceeding 1% (0.5 % each for CGST and SGST, and 1% for IGST) of the net value of taxable supplies through it by other suppliers where the collector is to collect consideration for such supplies. Every operator who collects the amount shall furnish, within ten days after the end of the month, an electronic statement in Form GSTR-8 containing the details of outward supplies of goods or services or both affected through it, including supplies of goods or services or both returned through it, and the amount collected under sub-section (1).

Important E-Commerce terminology in the CGST Act, 2017

The important terms are:

• E-commerce is the delivery of commodities, services, or both, including digital items, on a digital or electronic network.
• Any individual who owns, runs, or manages a digital or electronic facility; or platform for electronic commerce represents as an e-commerce operator.
•  Net value of taxable supplies means the aggregate value of taxable supplies of goods or services; or both made during any month by all registered people via the operator; less the aggregate value of taxable supplies returned to the suppliers during the same month.

Takeaway

Nowadays, e-commerce is an essential aspect of our everyday life. The consequences of globalization and rapid technological advancements are visible in knowledge and technology, raising the level of e-commerce. Moreover, E-commerce allows businesses to sell their goods and services in a variety of ways throughout the world. Further, also allows consumers to readily access goods and services. Furthermore, E-commerce taxation is a critical problem for nations, firms, and consumers that wish to participate in e-commerce. Further, in terms of countries, concerns such as tax loss and tax evasion are critical. As a result, these measures are critical in order to avoid discrepancies later on.

Please contact our specialists for additional information on this subject.