It is almost a year since the implementation of the Goods & Services Tax, and yet we are still getting used to the processes associated with it. Hence, there appears to be some confusion over how GST works. Which is why we thought of providing you with a better understanding of GST . This blog is the first in our series of blogs on taxation. Today, we shall talk about the very basics of the GST for eCommerce and how it functions.
What Is GST
Simply put, GST is a single tax which you have to pay while manufacturing, purchasing, or consuming a product or service. There are different rates for different products. Previously each transaction would carry a number of taxes like VAT, CST, Octroi, Service Tax, Excise Duty etc. Now, GST is the only tax which has to be paid. Without a GST number, you cannot sell online. Which is why, any dealer selling goods and services through an eCommerce portal needs to register themselves under GST.
Forms of GST
There are two major forms of GST, one for inter-state transactions (ie transactions across two state) and one for transactions within a state.
- Intra-State GST: This is for transactions within a particular state. Here, the GST has two components. First is the CGST or Central GST. It is charged by the central government. The second is the SGST or State GST, charged by the government of that state or union territory.
- Inter State GST: This is for transactions which are carried out across two different states. In this form of GST, the government charges an Integrated Goods & Services Tax or IGST. It is roughly an addition of SGST and CGST.
Various GST Rates and HSN Number
Different products have different GST rates. Although, there are some products which are exempt from GST, it does not apply to eCommerce. The different GST rates are: 5%, 12%, 18% and 28%. But how will you identify how much is the GST for your product?
The HSN number will help you identify your GST slab. HSN stands for Harmonised System of Nomenclature and is a universal system of identification. Each product has an HSN number which corresponds to a tax slab that tells you the GST for your eCommerce product. There are 5000 commodity groups, each identified by a unique six digit code.
Tax Collected At Source
When an eCommerce operator receives payment for a supply, it must collect TCS and pay it to the government. This is the Tax Collected at Source and it is only 1% of each amount payable to merchants. Merchants will be able to use this amount as a credit for paying off their GST.
To claim TCS credit, you have to take separate registration for each state from where you are selling goods. Therefore you need to register for separate GST numbers in each state. The documents required for GST registration are:
- PAN Card
- Proof of Place of Business
- Bank Account proof
How GST For ECommerce Operates
Let us explain the operation of GST for eCommerce with a simple example:
Product Value: Rs. 1000
GST charged: 12% = Rs 120
Customer Pays to ShopClues : Product Value(1000) + GST(120) = Rs 1120
Commission Fees: Rs. 150
GST on Commission Fee: Rs. 27
Amount Collected By Merchant = Price Paid By Customer (1120) – Commission (150 + 27) = Rs 943
Herein, we see that GST on transaction is Rs 120. However, under the the GST rules, you can claim the GST on commission fees as GST Credit. In this example the amount is Rs 27. Therefore, ultimately the amount of tax is Rs 120 – Rs 27 = Rs 93.
Under the previous system, there was not an option of tax credit on commission fees. This is just a benefit of the new system. Therefore, as you can see GST has proven to be a benefit for eCommerce sellers. We hope that this has increased your understanding of how GST for eCommerce functions. Stay tuned for more information on GST and taxation!