Thursday, January 22, 2015

Taxation of E-Commerce

The Taxation of E-Commerce will depend on the business model adopted by the Company.Let me try to explain 2 types of E-Commerce transition and taxation for the same.

1.   Business to Customer 
In this type of business model, the E-Commerce Company sells goods directly to customer. In this case Sales Tax is charged on sale of goods. 

How goods taxed and what is Sales Tax?
Sales tax is a tax which is levied on sale of goods, constitution of India empowers state to levy tax on sale or purchase of goods.

Type of Sales

a)    Interstate Sale 

When sale or purchase is made from one state to another it is governed by Central Sales Tax Act 1956, the rate applicable for particular goods will be taxed according. (i.e 1%, 2%, 4%, 12.5%)
 
Note: Industrial inputs are taxed at moderate rate & Luxury goods are usually taxed at higher percent 
 
b)   Intrastate Sale

If buyer and seller are situated in the same state, the taxation will be as per the Local Sales tax as per the state law.( Ex. In Karnataka the tax rates are 1%, 2%, 5.5%, 14.5%)
 
c)    Export Sale

Any export sale made is exempt from Sales tax.
 
Illustration

Suppose a customer orders a goods from Bangalore, and the E-Commerce company is having a place of business in Delhi, one the sale of goods CST is charged as per Central Sale Tax Act 1956( i.e 1%, 2%, 4%, 12.5%) 
 
2.   Customer to Customer 
 
In this case websites doesn't sell goods directly but they bring buyer and seller together and in turn charges commission. This commission in turn is a service fee and service tax has to be collected from the E-commerce company. Hence there is no concept of Sales Tax in this type of transaction.

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