Tax guide for online sellers investing in small business opportunities

05/6/2018
Are you scouting for small business opportunities? Or, are you a small business owner already? Are you planning to be a seller either on an e-commerce portal or a website that you own? Then here’s all you need to know about the taxes you need to pay. For many years until 2017, India had a litany of different taxes. Taxes were mainly categorised into direct and indirect taxes. Read on to discover what they are and why you must pay the same.

Per the Income Tax Act, 1961 any online website or business with residence in India would have to shell out about almost 30 percent of its profits as Direct tax also known as income tax. Then came a barrage of Indirect taxes, one of which is Service Tax. It constitutes of the delivery charges that could go up to 15 percent if you are running a self-owned online store. The next in line is Sales Tax, which varies from anywhere between one to twenty percent depending on different states and the products you sell. The same state tax is known as VAT and for services provided across different states, it is known as CST.

Custom Duty is another subset of Indirect tax. This gets levied on international deliveries based on the country of delivery, the product being sold and its weight. Excise duty is yet another tax that is not just exclusive to online sellers but encompasses all kinds of businesses, be it online or offline.

Having said that, let’s move on to how the world of taxes has changed post-GST. GST or Goods and Services Tax has substituted a majority of the above-mentioned taxes, offering clarity and simplifying tax transactions across the market.

For those e-commerce sellers looking to invest in small business opportunities, the first thing to do is apply for a GST number. Next, when you sell on online marketplaces like Amazon here’s how the tax journey would work:

A typical e-commerce portal does the job of not only being the mediator and delivering the product from seller to consumer but also acts as an owner of the product at some level. This means that at a certain point the e-commerce portal houses this inventory. By the merits of this, the end invoice will be created by the portal to the consumer.

For e.g. Mr. Vivek has ordered an air conditioner from Amazon. Amazon will in turn order the goods from an XYZ seller. The invoice will first be addressed to Amazon by XYZ seller mentioning the TIN number. Amazon will, in turn, share its own invoice to Mr. Vivek.

The typical Sales invoice format from the seller to the e-commerce portal should include the following details:

Name, address, and GSTIN of the seller

Invoice number

Date of issue

Name, address and GSTIN of the recipient (if registered)

HSN code

Description of the goods/services

Quantity of goods

Value (after discount)

Rate and amount of GST

For all e-sellers venturing into small business opportunities in India, it is important check the GST value of your product against the HSN code. The GST levied would vary basis the delivery location and even if you are selling digital products like e-books etc. Bear in mind that this is only a preliminary overview of the tax journey. For more details, it’s best to consult a tax expert.

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