Samsuddha Majumder

Partner, Trilegal

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GST Council's Respite For Small Dealers In E-Commerce Sector

The relaxations would provide a conducive environment to small dealers to become a part of the digital economy.

In our previous piece posted during India’s first stint with the COVID-19 pandemic, we had written about the effect of GST laws on small dealers who were making supplies through e-commerce operators. We had also discussed the additional compliances and restrictions that the GST laws impose on these dealers and how this could have a chilling effect on the e-commerce sector. 

Need To Open The Market For Small Dealers

With more rounds of lockdowns in the months that followed, the ability able to sell through online channels became an indispensable requirement. For some dealers, it even became a means to survive the lack of walk-in customers owing to the pandemic. Over this period, we also witnessed a sharp increase in the number of consumers warming up to the idea of substituting physical shopping with purchases over the internet. This trend only appears to be getting stronger, with Tier-II and Tier-III cities leading the charge.

As the e-commerce sector continues to grow rapidly, there is a strong need to open the market to smaller dealers and reduce the entry barriers that could hold them back from participating in this internet-enabled channel of business. This includes lowering the GST-related compliances that a small trader willing to sell through e-commerce operators would need to undertake.

GST Council's Recommendations A Step In Right Direction

The Goods and Services Tax Council (GST Council) appears to have taken cognizance of this requirement and has recommended certain steps to relax the GST compliances specifically for small dealers making supplies through e-commerce operators. 

The GST Council has recommended that the requirement of mandatory GST registration for persons supplying goods through e-commerce operators is waived. This relaxation would be limited to the persons making only intra-State supplies and whose aggregate turnover on all India basis does not exceed the registration turnover threshold applicable to the State (INR 20 lakhs or 40 lakhs in most cases).

It has also been recommended by the GST council that the taxpayers falling under the composition levy scheme are allowed to make supplies within their State through e-commerce operators. Under the composition levy scheme, the taxpayers with aggregate turnover of less INR 1.5 crores can pay an amount equal to a fixed percentage of their annual turnover which ranges from 1%, 2% and 5%, as the GST liability for the entire year. Currently, the taxpayers falling under the composition levy scheme are not permitted to make supplies through e-commerce operators.

These relaxations, in our view, are a step in the right direction. They would provide a conducive environment to small dealers to become a part of the digital economy. These changes are also synergetic with the larger goal of the government to make e-commerce more accessible and democratized for which it is in the process of implementing an Open Network for Digital Commerce. 

GST relaxations welcome change but....

While the relaxations are a welcome change, they still leave much to be desired. The timeline of January 01, 2023, provided by the GST Council for implementation of its recommendations, is only tentative and is subject to the preparedness of the GST common portal and the e-commerce operators. The modalities of these relaxations are also yet to be worked out by the law committee of the GST Council.

Further, these relaxations appear to apply only to those suppliers who would be making supplies within the State. This, by itself, runs contrary to the objective that e-commerce seeks to achieve, i.e. access to a larger consumer base without being restricted by geographical limits. Also, given the condition of intra-state supplies, these relaxations may also not benefit the small dealers located in the States where e-commerce is yet to become a viable business channel or where the customer base is insufficient.

It will be interesting to see if and how these issues are addressed by the legislature while implementing the recommendations of the GST Council.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

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