Are online subscription-based models regulated differently than standard e‑commerce sales?

The subscription-based model is increasingly popular in e-commerce, where consumers pay a recurring fee to receive goods or services regularly, such as magazine subscriptions, streaming services, or monthly product boxes. This model differs from traditional e-commerce sales where consumers make one-time purchases. Subscription-based services, due to their nature, involve unique issues related to payment processing, service delivery, renewal, and cancellation policies. Consequently, these services are regulated differently in India under both general e-commerce rules and special provisions that address recurring payments, auto-renewals, and consumer rights.

Regulation of Online Subscription-Based Models vs. Standard E-Commerce

Consumer Protection (E-Commerce) Rules, 2020

E-Commerce Platforms: Both standard e-commerce and subscription-based models fall under the purview of the Consumer Protection (E-Commerce) Rules, 2020. However, there are specific provisions for subscription models that address issues like automatic renewal and cancellation.

• Transparency: Subscription-based platforms must provide clear information on the pricing, terms of service, cancellation policies, and auto-renewal conditions at the time of sign-up. Failure to disclose such information can lead to complaints and regulatory scrutiny.
• Right to Cancel: The rules mandate that consumers must be allowed to cancel a subscription at any time, with a clear refund policy in place. Platforms must make it easy for consumers to unsubscribe or terminate their subscriptions, and they cannot impose unreasonable barriers to do so.
• Renewal Policies: Subscription services must inform consumers in advance about any auto-renewals. They must also ensure that consumers are not automatically charged after the free trial period unless the consumer has explicitly agreed to continue the subscription.

Example: If a user subscribes to an online streaming service and decides to cancel their service before the next billing cycle, the platform must allow easy cancellation without additional charges.

Taxation and GST on Subscription-Based Models

Goods and Services Tax (GST)

Subscription-based services fall under GST regulations, similar to other types of e-commerce transactions. The GST is applicable to services and goods provided via subscriptions, and the rate of GST can vary depending on the nature of the service or product offered.

• Tax Filing: Subscription-based models, like other e-commerce businesses, must be GST-registered if their turnover exceeds the prescribed limit. They must also comply with the filing of GST returns regularly and keep transparent records of transactions, including recurring payments and any discounts provided on subscription renewals.
• Example: An online fitness platform offering monthly membership plans will need to charge 18% GST on its services and file taxes regularly. If the subscription is cross-border, the applicable IGST (Integrated Goods and Services Tax) may apply.

Contractual and Billing Transparency

Service Agreements

Subscription models generally require consumers to sign a contract (often digital) that outlines the terms of service, payment terms, and cancellation procedures. These contracts should be clear, simple, and transparent, ensuring that consumers understand how their recurring payments work and when they are charged.

• Billing Cycle: Subscription services must clearly define whether the billing is monthly, quarterly, or annually. Consumers must be informed about the total amount payable, payment method, and date of renewal. A failure to disclose this could result in consumer complaints or legal consequences.
• Example: A food delivery subscription that charges ₹999 every month must clearly state this cost upfront, and the user must agree to this amount, along with the details on when they will be charged and how they can cancel the service.

Refunds and Cancellation Policies

• Refund Policy: The Consumer Protection (E-Commerce) Rules, 2020 require that platforms with subscription-based models must offer refunds in cases where the service is defective or when the consumer cancels within a certain period (e.g., before the next billing cycle).
• Cancellation Procedures: Consumers must have the right to cancel a subscription at any time. This could include automatic refunds when the cancellation is within the specified cooling-off period (if applicable), and platforms should not make it difficult for consumers to unsubscribe.

Example: If a user subscribes to a digital magazine for a year and decides to cancel the subscription after 6 months, the platform should either refund the unused portion of the subscription or allow the user to continue until the end of the current period.

Consumer Rights Under the Law

Consumer Protection Act, 2019

• Digital Contracts: Subscription services must ensure that digital contracts are not misleading, and they should offer an easy mechanism for consumers to review their subscriptions, change plans, and cancel without penalty.

Example: A mobile subscription app must allow users to review and cancel their subscription directly from the app interface, without requiring multiple steps or hidden fees.

Challenges Unique to Subscription Models

Automatic Renewal Issues

One of the common complaints with subscription-based models is auto-renewal. If consumers forget to cancel before the renewal date, they may end up being charged for another cycle of services or products they no longer wish to receive. This leads to frustration and potential consumer trust issues.

• Regulation: Platforms must ensure that auto-renewal terms are clearly explained during sign-up and that consumers are notified well in advance before any auto-renewal occurs. Platforms must also provide an easy opt-out option for renewal.

Multi-Platform Subscriptions

Some subscription services are bundled across multiple platforms (e.g., Netflix with Amazon Prime). In such cases, each platform must disclose the exact terms and conditions of the bundle, ensuring transparency in pricing and services.

Cross-Border Transactions

Subscription models often involve international services, especially for streaming platforms or SaaS products. This brings in complications related to cross-border taxation (e.g., IGST), currency conversion, and regional consumer protection laws.

Example of Subscription Model Regulation

A consumer subscribes to a monthly digital magazine service with a trial period of 7 days. After the trial period, the subscription automatically renews and the consumer is charged ₹299. However, the consumer decides to cancel the subscription before the next billing cycle but finds the process difficult.

• Consumer Action: The consumer files a complaint, stating that the platform did not provide clear instructions on how to cancel the service before the renewal.
• Platform's Responsibility: The platform reviews the case and finds that the cancellation procedure was not clearly communicated. The platform updates its terms of service, improves the cancellation process, and issues a refund to the consumer for the next cycle.
• Regulatory Compliance: In this case, the platform is required to ensure that all future subscriptions comply with the Consumer Protection (E-Commerce) Rules, 2020, including providing clear cancellation policies and easy access to grievance redressal mechanisms.

Conclusion

Online subscription-based models are subject to a distinct set of regulations compared to standard e-commerce sales in India. These include provisions for recurring payments, auto-renewals, cancellation rights, and refund policies under the Consumer Protection (E-Commerce) Rules, 2020, and GST laws. Platforms offering subscription services must prioritize transparency, consumer rights, and clear contractual terms to comply with regulatory requirements and ensure customer satisfaction. By doing so, they can build trust and avoid legal challenges, while offering consumers a secure and fair experience.