Guidance on Tax

The ONDC Network’s e-commerce model - based on open protocols and networks - marks a shift from the traditional paradigm of e-commerce. The functions of the centralised, integrated e-commerce platform/marketplace are unbundled and can be managed by separate entities. This unbundling allows for many new opportunities for innovation. However, it also brings with it certain challenges in assessing regulatory compliance burdens for network participants.

Determining the tax-related liabilities for the network participants can be particularly challenging, since the existing tax laws (as they apply to e-commerce)were designed for the traditional, platform-centric model of e-commerce. A construct like the ONDC Network was not conceived at the time.

Taking note of this gap, to help out existing and prospective network participants, ONDC commissioned a study on the applicability of tax laws to transactions on the ONDC Network. The guidance documents outlining (broadly) the tax obligations are given below:

ONDC Tax Guidance Part A - Tax implications on the ONDC Network

Part A provides an outline of how Buyer Apps, Seller Apps and Logistics Service Providers are likely to be treated under the existing provisions of the Income Tax Act and GST Laws. This part also discusses Section 194-O of the Income Tax Act, and Tax Collection at Source under the CGST Act, which contain specific obligations for e-commerce entities. The guidance is delineated for the different product categories and transaction models.

ONDC Tax Guidance Part B- Scenario-wise ready-reckoner

Part B provides an easy reference for network participants on the TDS and TCS obligations for the various transaction scenarios. The parameters used to construct the different scenarios are as follows:

(a) What is the business model of the seller app (viz. Goods/services marketplace, Aggregator, Inventory seller)?

(b) Who collected payment in the transaction?

(c) Does the seller have a GST-registration?

(d) Is the supply intra-state or inter-state?

(e) Who procured logistics?

(f) If a discount was offered, was it offered by the seller or the Buyer App?

Each row of the table represents one scenario based on the different permutations and combinations of answers to each of these questions. The table provides separate guidance for each of these scenarios.

ONDC Tax Guidance Part C - Cash-simulator

Part C is a set of two pre-populated tables with formulae for calculating cash flows for the scenarios as described in Part B. It is an easy utility for network participants to plug in different values (such as cost of product, logistics fees, buyer app fees etc.) and get a calculation of the inflows and outflows of cash and the related TDS and GST obligations.

How to use the cash simulators:

  • In the provided MS Excel Workbook, open the sheet labeled “Master Input Sheet”
  • In the Master Input Sheet configure the values that you want to use for your simulation, such as the value of the product, the Buyer App’s fees, fees charged by the Logistics Service Provider, discount offered by the Seller etc.
  • The sheet titled “Scenario wise implication” will get auto-populated based on the input parameters you feed in.
  • Go to the row which represents the scenario you are interested in (with respect to who collected payment, who procured logistics, who [if anyone] gave a discount etc.).
  • The columns representing the inflows and outflows of cash will be automatically computed. For example, you can examine the net cash inflow for the Buyer App for the given transaction parameters and scenario.

The simulators are presented as two separate MS Excel Workbooks. One workbook contains the cash simulator for scenarios where the Seller App is an Inventory Seller Node. The other workbook contains the cash simulator for the scenarios where the Seller App is a Marketplace Seller Node.

ONDC Tax Guidance Part D - FAQs

Part D is a list of the frequently asked questions regarding the application of tax laws to transactions on the ONDC Network. These questions are based on actual queries collected from network participants, and they provide an easy reference to the most common questions regarding taxation.

General

What is marketplace model?

Under the “marketplace model”, the sellers can list their goods / services on the platform of the e-commerce operator that connects buyers and sellers. The marketplace charges fees for its service. The actual supply of the goods / services is from the seller to the buyer.

(Example: Amazon, Flipkart)

What is the inventory model?

Under the “inventory model”, the seller has its own platform where its goods / services are listed. Buyers search for the goods /services on the seller’s platform. Under this model, supply of goods / services is by the E-commerce Operator.

(Example: Croma.com, Westside.com)

What is the aggregator model? How is the aggregator model different from marketplace model?

The aggregator model is similar to the marketplace model i.e., sellers can provide goods / services to the buyers using the platform of the e-commerce operator. However, under the GST law, on certain specified services, the liability to pay GST is on the e-commerce operator, provided certain conditions are met. In business parlance, these service providers are referred to as aggregators.

(Example: Zomato, Uber, Urban Company)

Which services are covered under the aggregator model?

The following services are covered under the aggregator model when provided through the E-Commerce Operator:

· Transportation of passenger services by a radio-taxi, motorcab, maxicab, motor cycle, omnibus or any other motor vehicle (Example: Uber, Ola)

· Accommodation services in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes. except where the service provider is a registered person under GST (Example: Oyo Rooms)

· Housekeeping services except where the service provider is a registered person under GST (Example: Urban Company)

· Restaurant services other than the services supplied by restaurant, eating joints etc. located at specified premises i.e. at premises providing hotel accommodation service having declared tariff of any unit of accommodation above INR 7500 per unit per day or equivalent (Example: Zomato, Swiggy)

TDS – General framework

What is TDS under Section 194-O of the Income Tax Act?

E-commerce has become a new way of doing business in India, where sellers and service providers sell their goods or provide their services through a third-party website/ platform/ mobile app.

In order to bring such online transaction(s) within the tax net, the Indian Government through the Finance Act 2020, inserted a new section - Section 194-O - into the Income Tax Act. This section applies where the sale of goods or provision of services of an ‘e-commerce participant’ is facilitated by an ‘e-commerce operator’ through its digital or electronic facility or platform.

For the purpose of Section 194-O:

· ‘E-commerce participant’ means a person resident in India, selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce

· ‘E-commerce operator’ means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce

· ‘Electronic commerce’ means the supply of goods or services or both, including digital products, over digital or electronic network

Who needs to deduct TDS under Section 194-O?to deduct TDS under Section 194-O?

E-commerce operator is required to deduct TDS under Section 194-O.

In whose name is TDS required to be deducted under Section 194-O?

TDS under Section 194-O is required to be deducted in the name of the e-commerce participant i.e. the seller of the goods or services.

What is the rate of TDS under Section 194-O?

Rate of TDS prescribed under Section 194-O is 1%. The rate of TDS increases to 5% where the e-commerce participant (i.e. seller) does not furnish a valid Aadhar linked PAN[1] to the e-commerce operator (deductor), as per Section 206AA of the Act.

[1] Under the Income-tax Act, the PAN has to be linked to Aadhaar by 31st March 2023, otherwise the PAN shall become inoperative

What is the amount on which TDS under Section 194-O is required to be deducted?

Section 194-O requires TDS to be deducted on the gross amount of sales or services of the e-commerce participant, facilitated by the e-commerce operator.

No specific guidance under the law has been provided on the deduction(s) [GST, sales return, refunds etc.], if any to be considered while computing the ‘gross amount sales or services’ on which TDS is required to be deducted. Accordingly, guidance in this regard may be sought from your tax advisor.

What are the de-minimus thresholds for trigger of TDS under Section 194-O?

Section 194-O (2) provides for de-minimus revenue threshold of INR 5 Lakhs in a financial year, where the e-commerce participant is an individual or Hindu undivided family(ies) who provide their PAN/ Aadhaar to e-commerce operator. No de minimus threshold exists for non-individual/ HUF.

At what point of time, TDS under Section 194-O of the Act is required to be deducted?

TDS under Section 194-O is required to be deducted at the time of credit of the amount of sale or services to the account of an e-commerce participant by the e-commerce operator or at the time of payment thereof by any mode to such e-commerce participant by the e-commerce operator, whichever is earlier.

Is TDS applicable on amounts not collected by the e-commerce operator from the end customers/ buyer (eg: Cash On Delivery transactions)?

Yes. As per the Explanation to Section 194-O(1), any payment made by a buyer directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be the amount credited or paid by the e-commerce operator to the e-commerce participant. Therefore, TDS will apply even where the e-commerce operator is not collecting payments directly from the buyer.

Applicability of TDS to transaction(s) on ONDC network

Is TDS applicable on transaction of sale of goods or provisions of services on the ONDC network?

On the ONDC network, the sellers (or seller apps) are selling their goods/ providing services to end consumers/ buyers through seller app and buyer app. Accordingly, the provision of Section 194-O may trigger in respect of such sale of good/ provision of service undertaken on the ONDC network.

Who will be responsible for deducting TDS under Section 194-O on the transaction on ONDC network?

Section 194-O requires the ‘e-commerce operator’ to deduct TDS under Section 194-O.

On the ONDC network, where the buyer app and / or seller app are facilitating the seller’s transaction sale of good/ provision of service, the buyer app and/ or seller app may qualify as an e-commerce operator and may have the liability to deduct TDS under section 194-O of the Act.

Where both buyer app and seller app qualify as e-commerce operator in respect of a particular transaction, the party responsible for complying with TDS provisions under Section 194-O may need to be determined in consultation with their tax advisors.

ONDC is in the process of making a representation to appropriate authorities to obtain clarity on who should undertake the TDS obligation(s), when there are more than 1 e-commerce operators involved in a transaction.

How will the Buyer App know whether the Seller app itself is the seller of the goods or services on ONDC network?

Transaction Level Contract digitally executed between the buyer app and seller app on ONDC network will explicitly state if Seller app itself is the seller of the goods or services. This is enabled through the ONDC Protocol.

What information does the e-commerce operator need to collect to undertake TDS compliance under Section 194-O of the Act?

E-commerce operator will need to collect the PAN of the e-commerce participant (i.e. seller). The ONDC Protocol will require the seller app or seller to provide PAN/ Aadhar.

Is credit available for TDS deducted under Section 194-O?

Yes, credit of TDS deducted and deposited by the e-commerce operator into the Indian government treasury under Section 194-O will be available to the seller.

Is TDS applicable on the logistic services provided by LOGISTICS SERVICE PROVIDERs?

Yes, TDS is applicable on the logistic services provided by LOGISTICS SERVICE PROVIDERs. The applicable TDS provision in such case would need to be analysed separately on case-to-case basis.

Does the TDS obligation arise on the buyer finder fees (if any) charged by the seller app to the buyer app?

The Buyer App will provide services of connecting the Buyer and the Seller on ONDC network and may charge a buyer finder fee to seller app. In this respect, Network Participants are advised to consult their tax advisors to ascertain their TDS obligation.

GST related

Who is liable to discharge GST on the supply of goods / services to the buyer under various models?

Marketplace model – Goods / services are supplied by the seller, the liability to discharge GST on the supply of goods / services to the buyer is on the seller.

Inventory model – Goods / services are supplied by the seller i.e. the seller app (who is the e-commerce operator), the liability to discharge GST on the supply of goods / services to the buyer is on the seller i.e. the seller app.

Aggregator model – Goods / services are supplied by the seller, however under the GST law, the liability to discharge GST on the supply of goods / services to the buyer is on the aggregator i.e. the seller app.

Who qualifies as an E-Commerce operator under GST?

Any person owns, operates, or manages digital or electronic facility or platform for electronic commerce qualifies as an E-Commerce operator under GST. Accordingly, both buyer app and the seller app qualify as E-Commerce operator under GST.

Who is liable to collect GST TCS?

E-commerce Operator is liable to collect GST TCS where the consideration with respect to such supplies is received by the E-commerce Operator. GST TCS Implication under various models:

Marketplace model - Seller app is liable to deduct GST TCS, except when consideration is collected by the seller himself. FAQs issued by Law Committee of GST Council has clarified that under multiple e-commerce model, E-commerce Operator making payment to the seller is required to deduct GST TCS. If the buyer app and seller app are same, GST TCS will be deducted by seller app.

Aggregator model - No GST TCS is deductible as liability of GST is required to be discharged by E-commerce Operator.

Inventory model - Buyer app is liable to deduct GST TCS, if consideration is collected by buyer app / LOGISTICS SERVICE PROVIDER appointed by buyer app. No GST TCS is deductible, if consideration is collected by the seller i.e. seller app / LOGISTICS SERVICE PROVIDER appointed by seller. If buyer app and seller app are the same and the inventory is owned by it, no GST TCS is deductible.

What is the rate at which GST TCS is to be collected?

GST TCS is to be collected by the E-commerce Operator’s @ 1% (IGST) or @ 0.5% each of CGST and SGST.

Can the E-commerce Operator pay the GST TCS utilizing its ITC balance the in electronic credit ledger?

No, the E-commerce Operator cannot pay the GST TCS utilizing its ITC balance in the electronic credit ledger. GST TCS liability has to be mandatorily paid in cash.

What is the due date for depositing GST TCS collected and filing the return for GST TCS?

E-commerce Operator has to deposit the GST TCS collected in a month by the 10th of the following month. Also, return in Form GSTR-8 has to be filed by the E-commerce Operator by the 10th of the following month.

Is there any threshold for applicability of GST TCS?

No, there is no threshold limits for registration as tax collector. E-commerce Operator is required to collect GST TCS on the taxable supplies made through it by sellers. Every E-commerce Operator who is required to collect GST TCS must be compulsorily registered in the State of the seller.

Is it necessary for e-commerce operators who are already registered under GST and have GSTIN to have a separate GST TCS registration?

Yes, every E-commerce Operator is required be required to register in every State where the concerned suppliers are located to comply with the GST TCS provisions.

Is GST TCS required to be collected on exempt supplies?

No GST TCS is required to be deducted on exempt supplies.

DISCLAIMER: These documents are only for the information of the reader. Nothing in these documents is to be construed as legal opinion or advice, or tax advice. Any person using these documents is advised to conduct their own assessment of their liabilities and compliances based on their specific business model, contractual arrangements, corporate structure and other relevant considerations. Open Network for Digital Commerce Ltd (“ONDC”) does not make any claims or give any guarantees or warranties regarding the completeness or accuracy of the information contained in these documents. The information contained in the documents are views of ONDC and the same is updated upto December 13, 2022. ONDC (including its consultants, subcontractors, employees and directors etc.) will not be responsible or liable for any losses, consequential, special or similar damages, claims (including but not limited to claims by tax authorities), court orders/decrees, or any cause of action including (but not limited to) by any government agency or authority brought against the reader(s) or reader(s) affiliates as a result of the reader’s use of the information contained in these documents.