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Taxation of online marketing (urgent please)

Sunil (Internal Auditor) (334 Points)

03 March 2014

Dear Sirs I am going to start a website through which online selling and purchasing of goods made possible. (Like Filpkart, snapdeal etc. Which tax is applicable for me Service Tax of VAT

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4 Replies

Vikas (CA) (1135 Points)
Replied 03 March 2014

This is not a small query; you need to look into the manner of realization, the relationship between the buyer, seller and you; the streams of revenue and their chargeability, etc.

Sunil (Internal Auditor) (334 Points)
Replied 03 March 2014

It works in the following process

1. Starting a website

2. Agreement with sellers that to host their products and prices in our website. A fixed

percentage of the selling price will be our remuneration.

3. Buyers will place orders to us

4. We will process the order and send it to respective Sellers

5. The seller will send the good directly to the buyer

6. At the end of month we and the seller will settle the account.

Vikas (CA) (1135 Points)
Replied 03 March 2014

Prima facie, it seems to be a sales commission contract, wherein you will be acting merely as a sales agent facilitating in execution of sales contract by coordinating between the buyers and sellers. Further, the only source of revenue earned in this transaction is from the seller of the product.

Hence, I would understand that the Service tax shall be leviable on the commission realizable on the sales transaction.

Sanjay Suresh (Student) (98 Points)
Replied 05 March 2014

If you are starting an ecommerce business, can you please specify as to what sort of undertaking it would be? Is it a sole proprietorship or partnership?

You don’t need a separate PAN for your business for taxation purposes. Your personal PAN will serve the purpose. And when filing Income Tax returns, you will have to file returns in your personal name.

As you and your sole proprietorship business are one soul, you don’t need to pay corporate tax rates. As mentioned earlier, individual tax rates apply as all profits, losses, assets and liabilities are the property of the proprietor. And the proprietor pays self employment taxes on any profits made, making it all the simpler.

Service tax is applicable only if you’re selling a service to your customers. And similarly if you are selling goods, VAT, Excise and/or Sales Tax are applicable. But all these taxes come into play once you’ve crossed an annual turnover of 10 lacs. You may also need to consider Professional Tax, if you’re employing people.

Depending on the nature of the business, you may need different registrations and licenses.

1. Recommended- Shops and Establishments Act:This registration would be needed incase you want to set up a physical shop and plan to employ people. And it is very essential for getting your own payment gateway for your online store.

2. CST/ VAT registration: If you are going to be selling goods, then VAT or CST (between states) may be needed once your annual turnover crosses 5 lacs.

3. Service tax: Registration for service tax is mandatory and may be required once your annual sales turnover crosses 10 lacs.

4. Professional Tax: This tax is mandatory if you have even one single employee. Each state is allowed to create its own guidelines, so it would be advisable to check whether it is mandatory to register for professional tax in your particular state.

All these registrations and licenses may vary from state to state, so please do check your state’s guidelines and regulations (exemptions, if any) to know better.

also refer https://theagni.com/2011/08/25/how-to-setup-a-ecommerce-business-in-india/