TAX IMPLICATIONS ON E-COMMERCE OPERATORS

Online services are becoming more and more well-liked and in high demand, proving that digitalization is the future. The rise of e-commerce companies is one of the most obvious shifts in the digital economy. In this article, we go through the direct tax ramifications for e-commerce operators who may or may not be residents.

Background

E-commerce transactions are impacted by several tax laws, including those relating to income tax and GST in India. To avoid taxing transactions and gain tax benefits, the government is adopting several sections in both direct and indirect tax regimes. Small sellers who sold their goods or rendered services through E-Commerce Operators were formerly exempt from taxation and could avoid paying taxes on those transactions since there were no regulations governing them. Additionally, non-resident online merchants gained money in India without paying taxes. As a result, the Government added the following provisions to the GST and Income Tax.

Under the Income-tax laws, the tax and withholding tax implications vary depending upon the role observed by an entity in the chain of e-commerce transactions.

Key Terms

E-commerce consists of the following things that one must be aware of:

i. Ecommerce Operator: A person who owns, controls, or runs a digital or electronic facility or platform for electronic commerce is referred to as an “e-commerce operator” or an ECO. An ECO in India may or may not be a resident.

ii. Ecommerce Participant: An “e-commerce participant” or ECP is a resident of India who uses a digital or electronic facility or platform for electronic commerce to sell goods, render services, or both, including digital commodities. 

iii. E-commerce Supply or services”:

(a) Online sale of goods owned by the ECO; or
(b) Online provision of services provided by the ECO; or
(c) Online sale of goods or provision of services or both, facilitated by the ECOr; or
(d) Any combination of activities listed in clause (i), (ii) or clause (iii).

Tax (TDS) to be deducted by E-Commerce Operator on payments made to E-Commerce Participant

In accordance with the Explanation to Section 194O, any payment made directly to an ECP by a buyer of goods or a recipient of services for the sale of goods or the provision of services, or both, that was made possible by an ECO shall be considered to be the amount credited or paid by the ECO to the ECP and must also be included with the gross amount of these kinds of sale or services for the purpose of TDS.

Note, no TDS  would be applicable if the ECP is a non-resident.

What are the Applicable Income Tax Provisions for An E-Commerce Operator?

Let’s look at the different income tax regulations that you, as an operator of an ecommerce marketplace, need to be aware of:

For Resident ECO:

An ECO is deemed to be a resident ECO if it is registered in India, has a permanent establishment there, or satisfies the requirements of Section 6 (the residency test) of Indian Income tax laws. According to income tax regulations, the following compliances must be made by Residents ECO:

1. Income Tax Return 

Commission—main ECO’s source of income—is classified under the head “Profits and Gains from Business and Profession.” The following table summarises resident ECO compliance.