‘Tis the season to be filing your taxes! Figuring out taxes can be a taxing affair, but fret not, as we bring a general guide on ecommerce taxes . For most part, the ecommerce taxes an online seller must pay are not that different from the taxes paid by a physical retailer. However, with the sale of goods across states, entry taxes enter the scene.
In this blog, we will look at the ecommerce taxes an Indian online seller is liable to pay. Theoretically, the tax setup is not very different for an online retailer. The basic framework is similar for a physical retailer and an etailer. However, when you transport your wares across states, there are other things to be considered.
The different taxes applicable to ecommerce
1. Value Added Tax (VAT)
VAT is a slightly ambiguous tax that has plagued ecommerce companies. The rule states that the current sales tax is to be replaced with VAT. However, small traders with a turnover of less than 5 lakhs per annum are exempted from the tax.
Ecommerce companies are arguing that they do not come under the purview of VAT, and most courts are in agreement. Recently, the Kerala High Court passed a verdict in favour of Flipkart. The court agreed with the company, which claimed to be only a service provider, and not a trader. So, in all likelihood, you will not have to worry about this tax.
The Internet and Mobile Association of India (IAMAI) has requested that ecommerce companies be excused from paying VAT as they are already paying service tax. The association said, “The e-commerce marketplace industry is being subjected to onerous VAT demands from several states. They should be recognised as marketplaces and exempt from VAT demands in states. As market places they provide a service to online sellers and pay the service tax on that account.”
2. Sales Tax
Sales tax is levied on products that are sold for the first time. In other, words, it is levied on first-hand products. There are two types of sales tax. Central Sales Tax (CST) – CST comes into play when you trade across states. This tax is levied by the parliament, but governed by individual states. Sales tax levied by individual states is referred to as simply Sales tax.
Ecommerce companies including Flipkart, Amazon, Snapdeal and the like are being referred to as sellers while applying sales tax, as they collect payment from the buyers.
3. Service Tax
A service tax is only levied on services, such as delivery of goods. Therefore, if you offer free delivery to your customers, service tax is not applicable. If you are an ecommerce marketplace, then you will have to pay service tax on the marketplace facility that you offer.
4. Entry Tax
This is levied by some states on the goods that enter the state from a different state. Each state has its own policy on entry tax. Ecommerce companies have been protesting over the recent levy of entry tax by the states of Gujarat, West Bengal and UP. Flipkart and Amazon have succeeded in getting stay orders in the entry tax proposal of states. The companies are questioning the legal grounds for applying tax, as they are being subjected to tax (not the individual sellers, but the marketplaces). The companies are stating that as marketplaces, they are not involved in trade, but only play the role of middle men.
Bear in mind that this list is to serve only as guidelines. For detailed advice and the taxes you should pay specific to your operations, you should consult a professional. Need help? Get in touch with Browntape, India’s largest ecommerce solutions provider.
