While the influence and effectiveness of GST on economy of India will still take some time to be reviewed under the light of facts, it would be interesting to know the immediate effects of GST on fast growing business sectors of India. One such sector is Digital Services. In our previous article we gave an overview of the effect of GST on ecommerce business of India. Let us be more specific and see how will it affect the SME (Small and Medium Enterprises) selling their products on online marketplaces.
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The Healthy Growth of e-commerce
In a study conducted by Internet and Mobile Association of India it was estimated that the e-commerce of India has crossed the milestone figure of 200,000 crores and reached a whopping 211.005 crores in December 2016. If the claims in the reports are something to go by the total revenue generated by the online retail industry of India will touch $100 billion by 2021.
Before going further, let us have some introductory points associated with online marketplaces in India:
In order to further enhance the E-commerce business model in eh country the government also allows the FDI.
Impacts of GST (Goods and Services Tax)
Mandatory GST registration
Though the other businesses need not bother registering with the GST until or unless they cross a certain turnover threshold, the case of e-commerce sellers is different. The turnover factor remains out of the equation when it comes to GST registration in case of e-commerce resellers. All the e-commerce resellers have to register themselves under GST irrespective of their total turnover.
No Composition Scheme
In order to facilitate the growth of SME enterprises there is a provision of composition scheme under GST Law. The scheme allows the SMEs to enjoy the almost unaffected growth by offering those dual benefits- filing the quarterly (instead of monthly) returns and rendering nominal tax rates at 2% or less. However, the SMEs involved in e-commerce businesses are excluded from this scheme.
TCS (Tax Collected at the Source)
There is another mechanism attached to GST in the context of online marketplaces. Known as TCS (Tax collected at the source) this mechanism made to mandatory for the online marketplace to deduct a prescribed percentage of total amounts that represent the GST liability of the seller. The amount needs to be deposited with the government. In order to claim the TS credit collected by marketplace operator, the seller needs t file monthly return under GST law. Understandably it will have a major impact on the liquidity for the SMEs that play a vital role in small business.
Useful advice for SMEs with limited capital and experience
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