Methods to levy indirect tax on e-commerce players

When e-commerce began nearly two decades ago, merchants and customers operated in a nearly tax-free regime, as the low volume of transactions did not attract government attention. With e-commerce becoming a multibillion-dollar segment and expanding towards the trillion-dollar mark, this entire industry segment has fallen under the microscopic scrutiny of the law and government, and is now subject to many indirect taxes at various stages, as described below.

The marketplace or fulfilment model of e-commerce, popularized by Amazon and Flipkart, has opened up new opportunities for the government and tax authorities to levy indirect taxes. Taxes on the supply of goods and services through e-commerce platforms in India can be imposed in three common transaction models.

(I) Foreign seller and Indian buyer. Under goods and services tax law an integrated goods and services tax (IGST) is levied at applicable rates on the sale of goods, and the buyer is required to discharge IGST liability on sales under the reverse charge mechanism.

The Customs Act, 1962, governs the import of goods into India and prescribes a basic custom duty (BCD) on such imports at the applicable rates. A social welfare surcharge at the rate of 10% of the aggregate customs duties on imported goods is also levied in addition to any other duties, taxes or cesses [local or specific taxes or levies] chargeable on the import of goods.

When e-commerce operators facilitate a sale of goods between the buyer and seller, goods and services tax (GST) provisions specify that the operator must deduct 1% of the sale amount as tax collected at source (TCS) before sending the payments to the seller.

Gautam Khurana is managing partner and Mamta Saluja is a senior associate at India Law Offices.

India Law Offices
D-19 (GF) & D-31, South Extension – 1
New Delhi – 110 049
India

Mumbai | Bengaluru

Contact details
Tel: +91 11 2462 2216 / +91 11 246 2218
Fax: +91 11 2465 4364
Email: g.khurana@indialawoffices.com