Are e-commerce marketplaces required to comply with electronic invoicing and GST rules?

E-commerce marketplaces in India are required to follow electronic invoicing and GST (Goods and Services Tax) rules as part of their operational framework. The GST Act, 2017 introduced a unified tax structure across India, and the e-invoicing system was implemented to streamline tax compliance and reduce tax evasion. E-commerce platforms must comply with these laws, ensuring that proper invoices are generated, GST is collected, and records are maintained for transactions made via their platform. Non-compliance with these requirements can lead to penalties and legal consequences.

Legal Framework for E-Commerce Marketplaces Under GST and E-Invoicing

GST Compliance Under the GST Act, 2017

• GST Registration: E-commerce platforms must be registered under GST if their turnover exceeds the prescribed threshold limits. Once registered, they are required to collect GST on behalf of the sellers who list their products on the platform.
• GST Collection: E-commerce platforms are responsible for collecting GST on behalf of the seller and remitting it to the government. GST rates vary based on the type of product being sold, and platforms must ensure they are collecting the correct tax based on the product category.
• E-commerce Operators: The platform itself is considered an e-commerce operator under GST law and has specific responsibilities, including ensuring that GST is charged on sales, GST filings are made on time, and the e-commerce sellers comply with the law.

Electronic Invoicing (E-Invoicing) Framework

Mandatory E-Invoicing

• As part of efforts to digitize tax collection and curb tax evasion, the Government of India has made e-invoicing mandatory for businesses with a turnover above ₹5 crore (as of 2021). This includes e-commerce platforms that facilitate the sale of goods or services.

E-Invoicing Requirements

• Under the e-invoicing system, businesses, including e-commerce marketplaces, are required to generate invoices in a specific JSON format through the GST portal or any authorized portal and then submit these invoices to the Invoice Registration Portal (IRP) for authentication.
• Invoice Authentication: The IRP issues an Invoice Reference Number (IRN), which must be included in the invoice. This number is used for GST filings, and it helps the government track invoices to reduce fraud and improve tax collection efficiency.

Integration with GST

• The e-invoicing system is integrated with the GST return filing system. Once the invoices are authenticated, the GST returns (like GSTR-1) are pre-populated with the invoicing data, simplifying the process of filing taxes for e-commerce platforms and sellers.

GST Returns and Filing Responsibilities

• GSTR-1: This return includes details of outward supply (sales), and for e-commerce marketplaces, it must include details of the sellers' transactions facilitated through the platform. The marketplace must ensure that accurate data is submitted for both its own sales and the sales made by the sellers on the platform.
• GSTR-3B: This is a summary return that needs to be filed by every GST-registered entity, including e-commerce operators. It provides an overview of the GST paid on sales and purchases, and the net GST liability.
• GSTR-8: This is specific to e-commerce operators. It details the GST collected on behalf of the sellers. E-commerce platforms must file this return monthly and pay the collected tax to the government.

Responsibilities of E-Commerce Platforms Regarding GST Compliance

Tax Collection at Source (TCS)

• E-commerce platforms are required to deduct and collect GST at source (TCS) on payments made to sellers. The TCS rate is 1% for goods and 5% for services and is deducted by the platform when the payment is made to the seller.

GST on Sales

• The platform is also responsible for ensuring that the correct GST rate is applied to the sale of goods or services. Goods may have different GST rates, depending on their category, and the platform needs to ensure that the correct rate is applied to the transaction.

Penalties for Non-Compliance

Penalties for E-Commerce Platforms

• Failure to Collect GST: If the e-commerce platform fails to collect GST from the seller or remit the amount to the government, they could be penalized with fines or interest for non-compliance.
• Non-Filing of GST Returns: If the platform fails to file returns on time, the GST department may impose penalties and interest for the delay. The platform may also face suspension of GST registration in extreme cases.
• Incorrect Information in GST Returns: If an e-commerce platform files incorrect or fraudulent information in its GST returns (for example, underreporting sales), it could face significant fines, interest, and even legal prosecution under the GST Act.

Penalties for Sellers

• If sellers fail to comply with GST rules, the e-commerce platform can be held responsible for facilitating transactions with non-compliant sellers. However, the platform is not directly liable for the seller’s non-compliance; they are only required to ensure that GST is collected and remitted properly for sales made through their platform.

Refunds and Adjustments

• E-commerce platforms are also responsible for managing refunds related to GST. If a product is returned, the platform must ensure that the appropriate adjustment is made to the GST records and that the tax credit is properly passed to the consumer.

Steps E-Commerce Platforms Can Take to Ensure Compliance

Implementing Automated Systems

• E-commerce platforms should integrate automated systems to manage GST invoicing and filing. Many platforms opt for cloud-based solutions that automatically generate invoices, submit them to the IRP, and file returns with the GST portal.

Maintaining Accurate Records

• Platforms must ensure that all sales records, including invoices, payment details, and GST collected are maintained in digital formats for easy access and filing during audits.

Training and Awareness

• E-commerce platforms should train their teams and ensure sellers are well-informed about their responsibilities under the GST regime. Workshops and training sessions can be conducted to keep sellers up to date on changes in the e-invoicing system and GST rates.

Example of Compliance Process

Example Scenario

• Suppose an e-commerce marketplace sells a laptop. Here’s how the platform would ensure compliance with GST rules:
• GST Collection: The marketplace collects 18% GST on the sale of the laptop.
• E-Invoice Generation: The platform generates an electronic invoice through the GST portal, which includes the required details like IRN and QR code.
• GST Returns: The platform files GSTR-1 detailing the sale and the GST collected on behalf of the seller, while GSTR-8 includes the TCS collected from the transaction.
• GST Remittance: The platform remits the GST to the government after deducting TCS.

Conclusion

Yes, e-commerce marketplaces in India are required to comply with both electronic invoicing and GST rules. These platforms must ensure that GST is collected, invoices are generated electronically, and tax returns are filed on time. Non-compliance can result in penalties and fines, so it is crucial for platforms to implement robust systems to meet their obligations under the GST Act, 2017 and the e-invoicing framework.