Are you new to the world of indirect taxation? Or newly transitioning into an online selling model and wondering what the GST implications are? Worry not, we’ve got you covered in this article.
GST Registration for Online Sellers: An Overview
The Goods and Services Tax (GST) has significantly impacted online selling in India. Understanding the registration process, place of supply rules, and invoicing requirements is crucial for online businesses to comply with tax regulations and avoid penalties.
GST Registration for Online Sellers
- Mandatory Registration: Generally, any online seller with an annual turnover exceeding ₹40 lakhs must register for GST. This applies regardless of their platform (e.g., Amazon, Flipkart, Meesho).
- Exemptions: There are a few exemptions to the mandatory registration requirement. For example, sellers with a turnover below ₹20 lakhs in the Northeastern states and Himachal Pradesh are exempt. Additionally, sellers dealing exclusively in exempted goods (e.g., agricultural products, non-alcoholic beverages) are not required to register.
- Benefits of Registration: Although registration involves filing returns and paying taxes, it also offers several benefits, such as:
- Input tax credit: Claiming credit for taxes paid on purchases, reducing the overall tax burden.
- Formalization of business: Enhancing credibility and attracting larger customers.
- Access to larger markets: Enabling interstate and international sales.
Place of Supply Rules to Follow for Online Selling
Determining the place of supply is crucial for calculating the applicable GST rate. The following rules generally apply:
- Interstate supply: If the seller and buyer are located in different states, the place of supply is the destination state. The seller must charge the CGST (Central GST) and SGST (State GST) rates applicable to the destination state.
- Intrastate supply: If the seller and buyer are located in the same state, the place of supply is the seller’s location. The seller must charge the CGST and SGST rates applicable to their condition.
Invoicing Rules for Online Sellers
All online sellers must issue invoices for every taxable supply. The invoice must contain the following information:
- GSTIN of the seller and buyer
- Description of the goods or services supplied
- Quantity of goods or services
- HSN/SAC code of the goods or services
- Unit price of the goods or services
- Total taxable value
- Applicable GST rate (CGST and SGST/IGST)
- Total amount of GST payable
- Payment terms
Online Selling Model
Before proceeding, you need to understand that the way you pay GST depends on the model of online selling you partake in. There are mainly two ways to make online sales:
- The first way is through direct sales. When you provide your own products and sell them to users directly via your own website. In that case, you need to follow standard GST registration rules.
- The second method is through e-commerce aggregators like Flipkart and Amazon where you don’t sell your products directly to customers, and therefore, sales made on an e-commerce portal get treated differently while calculating GST.
Tax Collected at Source (TCS)
Whenever you sell any goods or services via an e-commerce portal like Amazon, the e-commerce operator (ECO) will deduct an amount from the payment it collects from the customer before making payments to the seller. This amount can not be more than 1% of the sales, and this tax is to be paid to the government. However, you can claim this tax as a deduction on your GST filings within the same month of deduction. In fact, as soon as the operator uploads details of TCS, you can claim the credit.
Both the e-commerce operator and the sellers are required to submit details of all sales to the government.
Threshold Exemption
Under Section 24(ix) of the CGST Act, 2017, one needs to register for GST for online selling irrespective of the value of supply made. No person supplying goods or services through e-commerce is entitled to threshold exemption.
GST for Online Services
Online Information Database Access and Retrieval (OIDAR) services is a separate provision under the IGST Act that covers the category of online information supply, database access, or retrieval services provided to consumers from a remote location, such as e-books, PDFs, and drivers.
These are services provided solely through the internet, with no physical interaction between the supplier and the consumer.
Other examples include online gaming, data retrieval software, cloud services, intangibles such as music delivered via telecom networks, website hosting, electronic data storage, and digital content (films, TV shows, music etc.).
Need to know how to calculate GST percentage? Our GST calculation formula makes it simple and accurate.
Taxable Under GST
OIDAR services are taxable under GST in India. In the sense,
- If the supplier of online services and the consumer of such services are in India, it would follow the supply rules of India.
- Moreover, if the supplier of services is from overseas and the recipient is in India; the transaction would be compliant with tax in India.
- Additionally, if the user of the services is located outside India and the supplier is in India, the transaction would be compliant with tax in India, even if the consumer is from a non-taxable territory.
Commission and Its Input Tax Credit
Online platforms usually charge sellers a commission, which is a portion of the transaction price, when they make sales. The particular rate varies based on the category of items sold and the platform.
The platform is required to charge 18% GST to sellers for this fee; sellers are eligible to receive an input tax credit for this GST. The platform can also provide credit notes for additional fees or commissions. To determine the amount of input tax credit that can be claimed, the GST on these credit notes is subtracted from the GST on the invoice.
In addition, bills for services like shipping fees, advertising costs, and other charges could be sent by the platform. It is also possible to claim input tax credits for these costs.
GST Return Filing
For both online and offline merchants, the requirements for filing a GST return are the same. GSTR-1 and GSTR-3B returns have to be filed, either on a monthly or quarterly basis, based on your QRMP preference option. Furthermore, you might be asked to file an invoice furnishing facility (IFF) if you choose to file quarterly returns.
It’s important to keep in mind that even if there haven’t been any transactions during the registration month, GST reports still need to be completed. Stated differently, NIL returns must be filed; otherwise, fines may apply.
GST Registration Online Process
Online sellers can apply for GST online. They need not visit any government office. No fee is prescribed by the government for GST registration.
The Process:
- Visit the Goods & Services Tax (GST) | Homepage
- At the top of the webpage from the menu, Select Registration > New Registration
- Enter User Credentials and verify OTP.
- You should then upload scanned copies of all the necessary documents.
- Next, you need to select your category from – the taxpayer, tax deductor, and tax collector (e-commerce). It is an important step. Apply under the right category to avoid major issues. You can take professional guidance in order to ensure that you have applied for GST under the right category.
| Under Section 51 of the CGST Act of 2017, certain categories of registered persons need to deduct TDS before making payments to the supplier. Some of these categories are the departments of the central government or state governments, municipalities, governmental agencies, and others. |
| GST TDS is different from TDS under the Income Tax Act, 1961. Under Section 15 of the CGST Act of 2017, if a transaction of goods or services exceeds 2.5 lakhs; it is covered under both the GST Act and the Income Tax Act. Further, the seller needs to make both the deductions at the rate of 2%. Further, he must then deduct it from the amount payable to the supplier for the supplies made by them. |
The Bottom Line
It is true that CS, Chartered Accountant, and GST professionals may charge a nominal amount for rendering their services. But is is absolutely worthwhile to engage their services while registering for GST online: https://www.gst.gov.in/ as there are many complicated legal nuances that need to be understood and applied while registering under the GST Act.
You can speak to an expert from the Vakilsearch team to get a free consultation on GST. Get in touch with us today!
FAQs on GST Registration for Online Sellers
Is GST required for online selling?
It depends on your annual turnover. GST registration is mandatory for online sellers with a turnover exceeding ₹40 lakhs in a financial year. Some exceptions exist, like sellers in Northeastern states and Himachal Pradesh with turnover below ₹20 lakhs or those dealing exclusively in exempted goods.
Do I need to pay GST if I sell on Amazon?
Yes, if you are an online seller on Amazon (or any other platform) and your turnover exceeds the specified limit, you must register for GST and collect and pay the applicable tax on your sales.
Is GST applicable on online services?
Yes, GST applies to most online services provided or consumed in India. The applicable rate may vary depending on the nature of the service.
What is the GST rate for online trading?
There is no specific GST rate for online trading. The applicable rate depends on the type of goods or services you are selling. Most goods fall under various GST rate slabs from 0% to 28%. Services also have different tax rates depending on their type.
What is the GST limit for small traders?
The general threshold for mandatory GST registration is ₹40 lakhs for most states. However, some special considerations exist for small traders in specific sectors or states. For example, the limit for Northeastern states and Himachal Pradesh is ₹20 lakhs.
What is the GST limit for traders?
There is no separate GST limit for traders. The exact threshold of ₹40 lakhs applies to all businesses, including traders. However, the type of goods they trade may determine the applicable GST rate and other compliance requirements.
