GST in e-commerce simplifies tax compliance for both sellers and buyers, ensuring transparency and reducing tax ambiguities that existed earlier. It streamlines tax collection by defining place-of-supply rules, which clarify whether CGST, SGST, or IGST applies based on transaction location. This clarity helps prevent revenue loss from misapplied taxes. For sellers, GST reduces logistical complexities and expands market reach by allowing online sales without regional tax burdens. It also supports invoice standardization, boosting credibility with customers and easing financial records. Overall, GST in e-commerce promotes fairer competition, wider customer choice, and consistent pricing across states.
Types of GST applicable on E-Commerce Sales
e-Commerce has grown tremendously in India as more users are buying and selling items online, thanks to smartphones and internet connectivity. Under earlier tax laws, there was no clear treatment of online sales. GST has proper rules in place for e-commerce portals such as Amazon and their sellers.
In this article, we will discuss the following
- How does an e-commerce sale work?
- Place of supply
- Invoicing
- e-Commerce benefits both customers and sellers
How does an e-commerce sale work?
- Sellers register on the marketplace/e-commerce platforms such as Amazon. They then takes pictures of products and uploads along with descriptions and prices
- Buyer orders the product
- In most cases, items are shipped by the seller directly or through the e-commerce operator’s logistics centre
- e-Commerce operator charges a subscription fees/commission on the sale and assists sellers in everything from the photography of goods to delivery and payment
Place of supply
The Place of supply of goods under GST defines whether the transaction will be counted as intra-state or inter-state, and accordingly levy of SGST, CGST & IGST will be determined. Wrong determination of place of supply will result in tax collection by the wrong state. For example, inter-state supply is wrongly treated as intra-state supply and CGST & SGST are filled instead of IGST. The only option is to pay IGST separately and claim a refund of CGST & SGST.
GST is a destination-based tax, i.e., the goods/services will be taxed at the place where they are consumed/used and not at the origin. So, the state where they are consumed will have the right to collect GST.
In very simple words, where the supplier is from does not matter. Where the goods are going is relevant.
This rule applies to all e-commerce platforms as well as the sellers who sell their goods through such e-commerce platforms.
Let us go through the provisions of the place of supply for goods:
Physical goods
Example 1: Intra-state sales
Mr. Raj of Mumbai, Maharashtra orders a mobile from Amazon. The seller Happy Mobiles is registered in Nagpur, Maharashtra.
The place of supply is Mumbai in Maharashtra. The location of the supplier is in Mumbai. Since the place of supply is in the same state as that of the location of the supplier, CGST & SGST will be charged.
Example 2: Inter-State sales
Mr Raj of Mumbai, Maharashtra orders a mobile from Amazon. The seller Mobile Junction is registered in Bangalore, Karnataka.
The place of supply here is in Mumbai, Maharashtra. Since the location of the supplier( i.e. Bangalore) is in a different state when compared with the place of supply (i.e. Mumbai) IGST will be charged.
Example 3: Send to a third party
Mr Raj of Mumbai, Maharashtra orders a mobile from Amazon to be delivered to his mother in Lucknow (UP) as a gift. M/s All Mobiles (online seller registered in Gujarat) processes the order and sends the mobile accordingly and Mr Raj is billed by Amazon.
It will be assumed that the buyer Mr Raj in Maharashtra has received the mobile even though it was actually delivered to his mother.
Place of supply: Mumbai, Maharashtra
Location of supplier: Gujarat
GST: IGST
Digital goods such as eBooks
Selling digital goods like eBooks will be treated as services.
Example 4 – Sell eBook to a Business
M/s Sharma Chartered Accountants of Mumbai, Maharashtra orders a Book on finance from Amazon. All Books Ltd. (Gujarat) processes the order and sends the book accordingly.
Place of supply: Mumbai, Maharashtra (Location of the buyer)
GST: IGST (as the seller is registered in Gujarat)
Example 5 – Sell eBook to end consumer
Mr Raj of Bangalore, Karnataka orders a bestseller Book from Amazon. All Books Ltd. (Gujarat) processes the order and sends the book accordingly.
Place of supply: Bangalore, Karnataka (Location of the buyer)
GST: IGST (as a seller is registered in Gujarat)
The IP address of the buyer’s device will not be important.
HSN Code and applicable GST Rate
While supplying the goods via e-commerce operators, sellers will charge GST based on the applicable rates on the respective goods. Generally, the amount paid by the buyers is inclusive of GST. The invoice issued by the e-commerce operator, explicitly will indicate the rate and amount of GST.
The commission charged by e-commerce operators from the sellers falls under the HSN code of 9985, having a GST Rate of 18%.
Invoicing
Every supplier has to maintain invoice-wise details of supplies to registered taxable persons and the aggregate value of supplies to unregistered persons made through the e-commerce platform. Hence it is very important to raise GST-compliant Invoices.
Here are some details that should be mentioned in the Sales Invoice –
- Name, address, and GSTIN of the supplier
- Invoice number
- Date of issue
- Name, address and GSTIN of the recipient (if registered)
- HSN code
- Description of the goods/services
- Quantity of goods
- Value (after discount)
- Rate and amount of GST
Additionally, if the e-commerce operator is subject to e-invoicing rules, he must generate the IRN and QR code for B2B invoices from the Invoice registration portal. Try Clear e-Invoicing solution for a seamless IRN generation process. It is fast, dependable and affordable!
e-Commerce benefits both customers and sellers
Customers have more options, as compared to the local markets. Often, items are cheaper online as establishment costs, advertising costs are avoided by the sellers.
The sellers can:
- Reach a bigger market
- Increase their sales volume
- Avoid problems and costs of setting up branches
- Interact only with e-commerce operator for payment reducing debt management costs