Introduction
E-commerce and online services have exploded in India — from marketplaces and food-delivery apps to OTT, SaaS and ad platforms. That growth has produced a parallel web of tax rules.
Today, E-commerce and online services have become an inseparable part of our lives. From ordering food through Swiggy and Zomato, buying products from Amazon and Flipkart, watching movies on Netflix, to using SaaS tools for business, everything is shifting online. With this growth, the Government of India has also evolved its tax framework to ensure transparency, revenue collection, and fairness in the digital economy.
Why Taxation of E-Commerce is Important
Traditionally, taxation was straightforward because goods and services were sold physically within a state or country. But with e-commerce:
- Sellers and buyers may be in different states.
- Sometimes sellers are outside India, while customers are in India.
- Platforms act as intermediaries between millions of buyers and sellers.
To prevent revenue leakage and ensure a level playing field, India has designed specific rules under the Goods and Services Tax (GST) framework, as well as additional levies like the Equalisation Levy.
The three big buckets of tax you need to know
- Goods & Services Tax (GST) — indirect tax on the supply of goods and services inside India. It’s the primary tax that applies to most e-commerce transactions.
- Equalisation Levy (digital tax) — a levy aimed at certain cross-border digital services; it targets foreign digital service suppliers (online ads, some marketplace situations) when the supplier has no permanent establishment in India. The rules and rates have changed over time, so check current government guidance.
- Income-tax / corporate tax / transfer pricing — applies to profits earned by e-commerce businesses; cross-border operations may bring in additional rules (permanent establishment, transfer pricing, tax treaties). Official income-tax rules and guidance govern these.
GST — the most important rules for online sellers & platforms
Who pays GST?
- Supplier of goods/services normally charges GST to the buyer and pays it to the government.
- E-commerce operator (ECO) — marketplaces and platforms — have special roles under the CGST/IGST laws. Where the platform collects the consideration on behalf of sellers, the platform must collect tax at source (TCS) and report it. In addition, for a list of specific services (hotel accommodation, restaurant services, passenger transport, housekeeping, etc.), the law treats the e-commerce operator as if it were the supplier — i.e., the ECO is liable to pay GST under Section 9(5) of the CGST Act.
Section 52 vs Section 9(5) — short practical distinction
- Section 52 (TCS): ECOs must collect tax at source on supplies made through their platform (when they collect payment). This does not shift the primary liability to the ECO.
- Section 9(5): For notified services (like restaurant supply via apps, accommodation bookings, certain transport and housekeeping services), the ECO is treated as the supplier and must discharge the GST liability itself — often without allowing the underlying supplier to claim input tax credit on that component. This is why food-delivery apps and hotel-booking platforms have separate billing/collection rules.
Place of supply — why it matters
For services delivered online (think SaaS, OTT, online gaming, e-newspapers), GST applies only if the place of supply is in India. For many digital services, the place of supply is the location of the recipient, so platforms must determine the customer’s location for tax purposes and state-wise reporting on invoices. This affects whether IGST or CGST+SGST apply. Recent clarifications emphasize including the recipient’s state on invoices for online services.
Goods and Services Tax (GST) and E-Commerce
(a) GST for Sellers on E-Commerce Platforms
If you are a seller on Amazon, Flipkart, Myntra, or similar platforms:
- You must register for GST (in most cases) irrespective of turnover if you supply through e-commerce operators.
- You must issue tax invoices showing GST separately.
- You can claim Input Tax Credit (ITC) on eligible purchases.
(b) GST for E-Commerce Operators (Platforms)
E-commerce operators (ECOs) like Amazon, Zomato, Ola, and Airbnb have special responsibilities:
- Tax Collected at Source (TCS) – Section 52 of CGST Act
- Platforms must collect a small percentage (currently 1%) of the net value of supplies made through them.
- This amount is deposited with the government and reflected in the seller’s GST portal.
- Liability under Section 9(5)
- For certain notified services, the law shifts the GST liability from the seller to the platform.
- Example: Ride-hailing (Ola/Uber), food delivery (Swiggy/Zomato), hotel booking apps, housekeeping services.
- In such cases, the platform itself is treated as the supplier for GST purposes.
- Filing and Compliance
- Platforms must file detailed returns, disclose seller-wise transactions, and reconcile TCS collected.
GST on Online Services (Digital Services)
Digital services include OTT subscriptions (Netflix, Hotstar), online gaming, cloud storage, SaaS tools, and digital advertising.
- Place of Supply Rule: If the recipient is in India, GST is applicable.
- Indian Service Providers: Must charge GST (generally 18%) on invoices to Indian customers.
- Foreign Service Providers: If they provide digital services to Indian customers (like Google Ads or Netflix), they must register under GST in India or appoint an Indian representative to comply.
This ensures that even international giants pay taxes on revenues earned from Indian users.
Equalisation Levy (Digital Tax) — the digital ad / cross-border angle
To tax foreign companies that earn income from Indian customers without a physical presence in India, the Equalisation Levy was introduced. The Equalisation Levy is a direct tax levied on certain payments for digital services by non-resident companies without PE in India. Historically there were two strands:
- 6% Levy: On payments made to non-resident companies for online advertisements (e.g., when an Indian business pays Facebook for ads). 6% levy on online advertising services
- 2% Levy: On e-commerce supply or services provided by non-resident e-commerce operators (like Amazon Global, AliExpress, or foreign marketplaces). 2% levy on e-commerce transactions (marketplace supplies).
This levy is not part of GST and is charged under the Income-Tax Act. Recent policy moves and budgets have altered scope and rates: governments have periodically re-calibrated it in light of international OECD work on taxing the digital economy. Businesses supplying cross-border digital services should monitor the Income-Tax Department guidance for the exact applicability and rates.
Practical compliance obligations for platforms and sellers
- Registration: Most e-commerce operators and significant sellers must register for GST if their supplies are taxable and exceed threshold limits or if they operate across states. Foreign entities operating in India (or supplying to Indian consumers) often need GST registration too (or must appoint an Indian representative).
- TCS filing & reporting: ECOs must collect and deposit TCS and file details (periodic statements) of the sellers and supplies. These details feed into GST returns and reconciliation.
- Invoice and invoice content: For online services, the recipient’s location/state should be recorded; for Section 9(5) supplies, ECOs often issue invoices for the notified services. Failure to capture correct place of supply can cause IGST/CGST/SGST errors.
- Input Tax Credit (ITC): Where the ECO is treated as the supplier (Section 9(5)), the underlying supplier may not be able to claim ITC for that portion — a critical cash-flow and pricing consideration for small vendors.
Cross-border players and special cases
- Foreign marketplaces / app stores / SaaS providers: If they supply to Indian consumers, GST/IGST may still apply depending on place of supply and whether the supplier has a taxable presence. Many foreign suppliers choose to register under GST in India or operate through an Indian subsidiary or agent. Trade guidance suggests partnering with Indian entities or registering to avoid compliance gaps.
- Platform vs supplier disputes: The law sometimes forces platforms to act as the supplier for certain services; this can create friction between platforms and sellers over pricing, refunds, returns, and who claims credits. The NACIN and CBIC guidance materials walk through typical examples.
What this means for small sellers, app developers and consumers (quick takeaways)
- Small sellers: Understand whether the platform will collect TCS or will be treated as supplier for parts of your business. That affects your invoicing, ability to claim ITC, and cash flow. Keep accurate state/location data for customers.
- App developers / SaaS providers: Determine place of supply carefully. If your customers are in India, you’ll likely face GST/IGST obligations even if your company is foreign. Consider registering for GST or appointing a local representative.
- Consumers: You will see GST and sometimes separate platform charges on bills — platforms are required to show tax components clearly. For cross-border digital content, the tax component (IGST) may be added even if the supplier is non-resident.
Income Tax and Profits from E-Commerce
- Resident Sellers & Platforms: Pay income tax on their business profits as per normal provisions.
- Non-Resident Platforms: Income generated from Indian customers may be taxable in India depending on whether they have a Permanent Establishment (PE) or through equalisation levy provisions.
Practical Impact
For Sellers
- Must register under GST if selling through e-commerce.
- Need to reconcile invoices with TCS collected by the platform.
- Must maintain compliance or risk penalties.
For Platforms
- Heavy compliance burden: TCS collection, Section 9(5) liability, invoice management, and filing multiple returns.
- Need strong IT and accounting systems to handle millions of transactions.
For Consumers
- Consumers see GST as part of the final bill on food delivery apps, OTT subscriptions, cab rides, etc.
- Prices of digital services are slightly higher because tax is included.
Recent & near-term changes to watch (high level)
- India has been actively refining the e-commerce tax framework (for example, broader GST process improvements sometimes called “GST 2.0” and tweaks to reporting and seller verification). These reforms aim to make compliance simpler but can change reporting formats, invoice rules and dispute mechanisms — so keep an eye on official CBIC/GST Council updates and immediate circulars. News outlets and the GST Council publish the rollout dates and what changes are mandatory.
Recent Developments
- The government is continuously refining rules under GST 2.0 reforms to simplify compliance for e-commerce operators.
- International tax negotiations (OECD’s global digital tax framework) may bring further changes to equalisation levy in coming years.
Conclusion
Taxation of e-commerce and online services in India is a dynamic and evolving area. The framework tries to balance government revenue, ease of doing business, and fairness among domestic and foreign players.
For sellers and businesses, staying compliant with GST and income-tax rules is not optional — it is essential to avoid penalties and to build trust with platforms and customers. For consumers, taxes are already embedded in the price they pay, but awareness helps understand why bills look the way they do.
India’s taxation of the digital economy is still maturing, but it reflects the country’s intent to keep pace with technology and ensure that both global and local players contribute fairly to the economy.
Where to read the authoritative rules (start here)
- GST Council FAQs and guides (official) — good for GST definitions and e-commerce operator FAQs. (Goods And Services Tax Council)
- Income-Tax Department page on Equalisation Levy — for the latest scope, rates and returns. (Income Tax India)
- NACIN e-Book and CBIC guidance on e-commerce operators — practical worked examples and compliance steps. (National Academy of Customs)
- Recent government announcements and news summaries about GST 2.0 and reporting rule updates. (The Times of India)
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