THE TAXES AN E-COMMERCE STARTUP HAS TO PAY
Ecommerce Companies have increased nowadays and are rising at a tremendous pace. Because of the convenience it offers in buying things while sitting at home or office it is becoming increasingly popular. Many big and small companies are riding on bandwagon of Ecommerce.
However, law is still not very clear on the transactions done on an ecommerce website. Now let’s see the possible taxes that an ecommerce company will have to pay:
There are basically three types of taxes to be paid:
- Value added tax: VAT is a state levy, which is levied when the goods are sold within the state (intra state).
- Central sales tax: CST is levied when the sales are done from one state to another.
- Service tax: It is levied on the service component of the business. As such the negative list prescribed under the Service Tax regime does not exempt any specific e-commerce transaction.
The business model adopted by the Company determines how the ecommerce transactions will be taxed:
- Business to Consumer:
In this model the ecommerce sells the goods directly to the consumers. Such transactions will be subject to VAT or CST, depending upon whether it is an interstate sale or intrastate sale.
- Manufacturer/ Vendor, Ecommerce Company and Consumer:
The ecommerce collects orders from its website, issues an invoice to its buyers and give the orders to its vendors / manufacturer to deliver the products. Assuming that all the three parties are located in the same state, the Company will charge VAT and will collect the same from its Customers. The manufacturer will collect VAT from the ecommerce company which will in turn collect it from the customers. The ecommerce company can offset the VAT paid against the VAT collected by it from the customers. The Courier Company will charge service tax to the manufacturer. If the ecommerce company is taking delivery charges, it will have to charge service tax on this fee.
- Customer to Customer:
In customer to customer transactions, the websites does not sell anything directly but provides a platform for two customers to come together for sale and purchase transaction. The website in turn charges a commission for bringing them together. The commission charged by the website is a service fee and service tax has to be collected by the ecommerce company. In such transactions, there is no concept of Sales Tax.
