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E-commerce Taxation, Legal, TAXATION

Running a business through e-commerce may seem uncomplicated and economical, there are a variety of legal factors that an e-commerce business must seriously consider and keep in mind before commencing and while carrying out its activities. In this article, we will discuss some of the important legal and Tax compliance for an E-commerce in India.

Legal Compliance:

  • Business Registration: E-commerce businesses, 99% register their business before starting operations mainly because these are tech start-ups that plan to raise funding in near future.
  • Contracts: E-commerce businesses operations are regulated by the contracts that are on the website. Whether it’s a vendor or a customer the user journey is protected by these contracts. Hence contracts are mandatory.
    • Some of the most common forms of e-contracts are clicked wrap, browse wrap and shrink-wrap contracts.
    • The existence of a valid contract forms the crux of any transaction including an e-commerce transaction. Contracts governed by Indian Contract Act, 1872
  • Security Issues: Transactions on the internet, particularly consumer related transactions, often occur between parties who have no pre-existing relationship. This may raise concerns of the person’s identity and authenticity with respect to issues of the person’s capacity, authority, and legitimacy to enter the contract. Hence, Businesses should look after:
    • Authentication and Identification
    • Identity Theft and Impersonation
    • Privacy
    • Data Protection
    • Security of Systems
  • Payment Mechanisms: Electronic payment systems are often more complex than traditional payment methods, as they typically involve many users. It is important that these start-ups or businesses abide by Payment Guidelines.
  • Intellectual Property: E-commerce platforms should use either proprietary technology or validly licensed technology. Please consult your professional or our Wazzeer Professional network for doubts.
  • Content Regulation: For the e-commerce ventures that distribute content or acts as a platform for distribution or exchange of third party information/ content, compliance with content regulations assumes paramount importance. Issues like obscenity and defamation should be avoided.
  • Jurisdiction Issues: In e-commerce transactions, if a business derives customers from a particular country as a result of their website, it may be required to defend any litigation that may result in that country.


Taxation Compliance:

  • Direct Taxation: In India, the High-Powered Committee (“HPC”) constituted by the Central Board of Direct Taxes, submitted its report in September 2001. The report considered and contemplated upon the need for introducing a separate tax regime for e-commerce transactions.
    • Tax on turnover generated
    • Tax on Income earned from Licensing Technology
    • Tax on income earned from leasing equipments.
    • Transfer pricing
  • Indirect Taxation:
    • GST: GST will be applicable to businesses based on two factors: a. Annual revenue b. Type of business.

GST eligibility critera

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E-commerce Taxation
The draft model law on goods and service tax (GST) has proposed bringing all online buying within the purview of the proposed levy. The move will end uncertainty over tax on purchases from e-commerce sites.

The draft bill has proposed tax collection at source for e-commerce, which means that any payment made to a supplier would be subjected to the provision at a notified rate. Experts said the inclusion of e-commerce under the ambit of the tax will pose a huge burden on these companies. “This will mean significant compliance burden on e-commerce companies as many of them deal with thousands of vendors. Further, this may lead to refund situation for many suppliers who operate on thin margin. In addition, e-commerce companies will need to file a statement providing details of all supplies made through this platform,” said Pratik Jain, indirect tax leader at the consulting firm. The government is proposing to cast the net wider by including several more players within GST.

Instead of a threshold of Rs 1.5 crore for central excise, the draft bill has proposed a Rs 10 lakh as threshold and any unit, service provider or retailer above the floor will be required to register and will be subject to tax. GST, which has been in the works for a decade, is seen as one of the most important tax reform initiatives post-independence.

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E-commerce Taxation
Ecommerce firm ‘Flipkart’ can be in trouble because of its revised return policy. Flipkart was threatened by merchants to either leave or be inactive on the online marketplace, objecting to new conditions imposed by the company on them. Flipkart had earlier announced a revised return policy for buyers on June 6, 2016.

Wherein, it stated that the customer would now return the products within 10 days, along with return shipping, this led to additional operational expenses for sellers. The company had decided to increase the sales commission it levies on merchants, by up to 5% in some categories, as well as charge them a shipping fee, a reverse shipping fee, and a collection fee on every product returned by customers, effective from June 20. According to ET, a trade association, representing online vendors said that merchants have decided to stop selling on flipkart as their cost is going up.

They also said that earlier flipkart used to charge fee of 1% of order only when they were at fault, but now flipkart will deduct shipping charges and collection fees from sellers (in case of returns), which will be huge since return percentage ranges from 8% to 10% (deliveries) in most of the categories. The merchant association also informed that the vendors are not upset with the increase in commission but with the change in return policy. A senior member of the All India Online Vendors Association (AIOVA) said, about 300 of its 1,000 merchants have decided to leave flipkart as their operating cost will become much higher.

According to Flipkart, its new policy will offer predictability and control over payments for sellers. It has advised vendors to ensure effective cataloguing and packaging, and prevent mis-shipments to avoid product returns.     It is a summarization of an article in INC 42. For more information, visit

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Business Registration, E-commerce Taxation, Start up Lessons, TAXATION
If you want to do business on Flipkart then you need to register, either yourself or your business, and become a Flipkart Seller by signing on with Flipkart. The process is easy and can be started from Flipkart Seller homepage. You can signup as a Flipkart seller by providing information about business and product that you want to sell on flipkart. This information will be verified by flipkart during the registration process.

Some of the details that must be provided and verified during the Flipkart Seller registration process include:
  • Name
  • Email address
  • Phone number
  • Pickup address / business address
  • Categories of product the business is interested in selling through Flipkart
  • Business registration documents
  • Tax registration documents
Business Registration
Your business must be registered in order for you to become the Flipkart Seller by completing Flipkart seller registration process, because while registering yourself you will need to submit documents related to business registration. These documents depend on the type of business registration you have done. Sole proprietorship is not advisable for becoming Flipkart seller as sole proprietorship business does not offer limited liability protection, is not easily transferable, cannot have investors or partners, not very scalable and has limited capacity to obtain bank loans. Becoming a Flipkart Seller  as a Private Limited Company is one of the most preferable methods of becoming a Flipkart Seller as it provides limited liability protection to promoters, separate legal entity, easy transferability, ability to take on investors or partners and quickly scale-up operations. The following documents must be submitted for a Private Limited Company:

Identity Proof
  • Copy of Certificate of Incorporation of Private Limited Company
  • Copy of Memorandum of Association
  • Company PAN Card
Address Proof
  • Company Telephone bill (Fixed line)
  • Company Electricity bill
  • Lease or rental agreement
Tax Registration Once you have decided and registered your business entity, you need to file for tax registration and also open a bank account in the name of the business.

Registration Required
  • PAN – PAN Card of the individual or private limited company or partnership
  • TIN – TIN Number is also known as VAT Number / Sales Tax Number / CST Number in the name of business
  • TAN – TAN is required for Tax Deduction at Source (TDS) ? in the name of business
  • Bank account name
  • Bank account number
  • Bank IFSC code
  • Business name
Starting to sell on Flipkart
Once you have submitted the information and documents with Flipkart to become the Flipkart seller, and it is verified by them, the business can commence selling of its products on Flipkart.

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