Taxation of E-Commerce Transactions in Income Tax & GST

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).

Clause 44 to Section 2 of the Central Goods and Services Tax Act, 2017 (the Act), electronic commerce is defined as supply of goods or services or both, including digital products, over digital or electronic network. It implies a channel whereby commercial transactions involving supply of goods or services or both, are facilitated electronically.

A person who owns, operates or manages such a facility or channel electronically over the internet in order to facilitate such e-commerce transaction is known as an electronic commerce operator (ECO). Common examples of ECO include Flipkart, Amazon, Zomato, etc.

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.

Taxation of e-commerce

The taxability of e-commerce transactions under GST arises when there is a supply of goods, services or both. Where goods or services supplied are exempt from being chargeable to tax under GST, there is no liability. An instance of this includes supplying alcoholic liquor for human consumption, which is outside the ambit of being leviable to tax under GST.

Provisions Applicable

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.

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

S. Number	Description	Supplier of Service	Person Liable to pay GST
1.	Services include passenger transportation by radio-taxi, motor cab, maxi cab, and motor bike.	Any person	E-commerce operator
2.	Services including the provision of lodging at hotels, inns, guest homes, clubs, campgrounds, or other commercial establishments intended for residential or lodging purposes.	Except for those who are required to register under sub-section (1) of Section 22 of the said CGST Act, i.e. whose turnover exceeds the Threshold level.	E-commerce operator
3.	Housekeeping services such as plumbing, carpentry, and so forth.	Except for those who are required to register under sub-section (1) of Section 22 of the said CGST Act.	E-commerce operator

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

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

Liability of registration

Registration under GST is the most crucial requirement for a supplier of goods, services or both. It comes with several advantages, including being a legally recognised supplier and being able to collect tax from its customers. It also acknowledges the right of a supplier to claim input tax credit on the purchases being made by it. It makes it imperative to quickly go through the categories of people essentially required to comply with this requirement.

Section 24 of the Act provides a list of persons who are mandatorily required to get registered under the Act. It includes:

every electronic commerce operator who is liable to collect tax at source (TCS) under Section 52 of the Act, irrespective of the annual turnover he is making;
where an ECO or a person representing such ECO is making supply of certain specified services that have been notified by the Central Government by exercise of powers conferred to it under Section 9(5) of the Act or Section 5(5) of the Integrated Goods and Services Tax Act, 2017, every such ECO and persons; and,
every person supplying goods or services or both through an ECO, other than supplies notified under Section 9(5) of the Act, upon which TCS is not to be collected by ECO.

(In cases where TCS is not required to be collected by ECO, such person supplying goods or services or both would be required to be registered only where his aggregate annual turnover exceeds a certain threshold limit.)

FAQs

How are e-commerce transactions taxed under Income Tax in India?

E-commerce transactions are subject to Income Tax based on the income generated from these transactions. Sellers must report their income as per the applicable tax slabs and are required to maintain proper books of accounts.

What are the GST implications for e-commerce transactions?

E-commerce transactions are subject to Goods and Services Tax (GST). The tax is applicable on the supply of goods and services, and the e-commerce operator is required to collect and deposit GST on behalf of the sellers using their platform.