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Small traders who will be allowed to sell through online platforms without goods and services tax (GST) registration from January will be spared the need for a 1% tax to be collected at source, said a person familiar with the fine print of the decision taken earlier this week by the GST Council.

Currently, e-commerce operators have to collect tax at 1% while making payments to traders and remit it to the government. With the Council’s decision to bring online and offline retailers on a par with respect to GST registration requirements, traders with less than 40 lakh sales in goods will not require GST registration for online trading within the state. An important relief that will come along with this is the exception from the 1% tax collection at source (TCS), explained the person, who spoke on condition of anonymity.

“E-commerce players are collecting TCS on behalf of the seller and crediting it to our account. Now, they need not collect it in the case of those exempted from GST registration from January," said the person.

The GST Council gave time till 1 January to implement the scheme as the government has to make rules and e-commerce players have to modify their systems and software.

“For example, an e-commerce operator who is selling through an online platform without GST registration in Punjab cannot sell it to a customer in Haryana. The e-commerce operator has to capture the pin code of the buyer," said the person.

An email sent to the finance ministry and the GST Council on Thursday seeking comments on the story remained unanswered at the time of publishing.

Around 120,000 traders are expected to benefit from the move to exempt registration requirements in the case of those selling goods worth up to 40 lakh and those into services trade worth up to 20 lakh, according to an official estimate.

A spokesperson for Amazon said the move would be a big support for small sellers. “We welcome the decision by the GST Council as this will provide a big thrust to small sellers such as local shops and kiranas in the adoption of e-commerce through our programs. Amazon is deeply committed to enabling the growth of small and medium businesses in India," the spokesperson said on Thursday.

The Council’s decision to provide relaxation to micro, small, and medium enterprises will go a long way in improving their livelihood, according to an industry representative.

The registration requirement is waived off in the case of small traders, but it is unlikely to affect government revenues as taxes would be paid to the government in the case of a product up to the retail level in the supply chain, and only a marginal tax element on the margins of the retail trader may go out of the net.

Policymakers believe the current norm of compulsory GST registration for online sellers, irrespective of their sales, comes in the way of small businesses reaching a larger customer base.

The registration waiver is significant given that a large part of the Indian economy is informal, and could benefit from going online. India has more than 6.3 million unincorporated, non-farm micro, small and medium businesses accounting for a third of its economic output.

Industry body Nasscom welcomed the Council decision and said in a statement on Thursday that taxpayers who have signed up for a presumptive tax scheme—called the composition scheme--would now be allowed to make intra-state sales through e-commerce operators subject to riders.

This, according to the industry body, will provide additional avenues of growth to small sellers and let them sell across the country without having a physical principal place of business in each state.

ABOUT THE AUTHOR
Gireesh Chandra Prasad
Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
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Updated: 01 Jul 2022, 06:17 AM IST
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