GST – Goods and Services Tax Explained for Digital Entrepreneurs
We are in the new India where everything is changing faster than before. The currency, taxation for business and individuals, the standard of vehicles we drive and a lot more to come.
This a new era for the youth of the country to have options to choose from many alternative career options.
In this blog, know about the GST for Dropshipping businesses in India.
Need of GST for Businesses
Digital Entrepreneurs or Nomads are people who work from anywhere, anytime they like.
That is a possibility now and it is completely legal with minimum paper works with government as well.
Anyone can form a simple one person company with minimum documentation and obtain a GST certificate.
You need to understand one basic thing like, once you get a GST you have to inform the government once in a month or at least once in a year how you are doing.
They need to know after issuing a GST Certificate right?
There are exemptions to try out or like a trial period before enrolling yourself or your business into GST structure.
That limit was 20L and its been increased to 40L from the fin year 2019-2020.
If your total business revenue is less than this limit for the financial year, you do not need to file GST.
We suggest you to set a trial period of 1-3 months and create a basic company and get GST certificate for the same.
Once you get GST, its mandatory to file GST returns every month unless you enrolled under composition scheme.
Composition scheme allows you to pay 1% of total turn over if your total revenue is under 2 Crores per year and there are also other related schemes as well.
We suggest you to register your business under regular GST and file returns every months.
You can use tools like Zoho books (Rs.2500 per year) and file the returns with click of a button yourself.
Need of GST for eCommerce Sellers
As an e-commerce seller, registering for GST is very important. It helps you comply with the law, avoid legal troubles, and build trust. Some benefits of paying GST are,
- Legal compliance: GST registration ensures that your e-commerce business is legally compliant with the tax laws of India.
- Input tax credit: You can claim the input tax credit for the GST paid on purchases and expenses related to your e-commerce business. It can help you reduce your tax liability and increase your profit margin.
- Increased credibility: GST registration adds to your credibility as a business and helps build trust with your customers and suppliers.
- Compliance rating: GST compliance rating is a public rating displayed on the GST portal. A higher compliance rating can help you gain the trust of potential customers and suppliers.
- GST can also enable you to expand your business by selling on e-commerce marketplaces like Amazon, Etsy, Meesho, and Flipkart.
GST can benefit your e-commerce business in various ways, including reducing your tax liability, increasing your credibility, and giving you access to a broader market of customers and suppliers.
This is a new tax reform levied at all stages from manufacturing to consumption with the credit of taxes paid at previous stages available as input credit.
This reduces the tax burden of sellers who will need to pay tax for the profit or the value addition done.
There are different GST slabs mentioned for various product types. You can refer to our products’ GST slabs here.(link to HSN codes FAQ).
The broad categories of GST are SGST/CGST and IGST. If you are a registered/unregistered business from Tamil Nadu, you will be billed under SGST/CGS.
If you are a registered/unregistered business from other states, you will be billed under IGST.
From here, we will explain the applicable taxation formalities with respect to our print on demand and fulfilment business model and this applies your B2C transactions only.
Under Section 10, Sub-Section 1 (A/B), you(Qikink’s Clients) will be considered as third party. Here, the place of supply will be the principal place of business of the third party. So, Qikink will invoice you with tax slab as per your state.
Section 10(1)(b) states “where the goods are delivered by the supplier to a recipient or any
other person on the direction of a third person, whether acting as an agent or otherwise, before
or during movement of goods, either by way of transfer of documents of title to the goods or
otherwise, it shall be deemed that the said third person has received the goods and the place of
supply of such goods shall be the principal place of business of such person”
When goods are delivered to a party on the direction of a third person the place of supply will be the location of such third person and not where the delivery terminates.
Difference between CGST, SGST and IGST
CGST, SGST, and IGST are all types of taxes levied under the Goods and Services Tax (GST) system in India.
CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax) are levied on intra-state transactions, i.e., when the seller and buyer are in the same state.
IGST (Integrated Goods and Services Tax) is levied on inter-state transactions, i.e., when the seller and buyer are in different states.
The main difference between CGST, SGST, and IGST is in the way they are collected and distributed among the Central and State Governments for various transactions within and across state borders.
You can easily apply for GST from your auditor with basics documents like PAN Card, Aadhar Card, Photo and a proof for business address.
Proof for business address can be a rental deed if it’s a rental property or a property tax receipt if it’s own property.
You can use your home or apartment’s rental deed as well. If your parents’ own a property, you can also get a rental deed from their address.
You can get GST certificate for your business with these documents.
How To Register GST for Online Selling
You will need to register for a GST number to sell products online. The process is simple to apply through the GST portal. Here are the steps to apply for GST registration as an online seller:
- Visit the GST portal and select the ‘Register Now‘ option.
- Fill out the necessary details like your name, PAN number, email address, and mobile number.
- Enter the OTP received on your mobile and email for verification.
- Once verification is complete, you will receive an Application Reference Number (ARN) through email and SMS.
- Use the ARN to track the status of your application.
- After processing the application, you will receive a GSTIN (Goods and Services Tax Identification Number).
- Use the GSTIN to file GST returns and pay GST.
Tip: Make sure to have all the documents like PAN card, Aadhaar card, and bank details in digital format before starting the registration process.
Filing GST Returns for Dropshipping Business
To file GST returns you need Sales Invoices, Purchase Bills, Tax charged on sales invoices and tax paid on purchase invoices. You need to file 2 monthly returns and one annual return.
The manual entry is only on the first process of filing GSTR1 before 11th of every month. The other filing GSTR 3B will get its value from your filing of GSTR1 and your vendors’ and needs to be done before 20th of every month.
Your buyer purchases from you and you are sending sales invoice to him. In this case, you need to file all those invoices in GST as GSTR-1 by 11th of next month.
By 20th of the month, file GSTR 3B where in all the sales along with all the input tax credit from purchases are declared(You can also reconcile GSTR-8’s TCS input here if you are selling in marketplaces).
If Kiran from Hyderabad purchases T-Shirt from you (a registered business in say Bangalore) for Rs.500, you invoice him for Rs.500.
You place the same order with Qikink for Rs.350, Qikink invoices(with IGST) you for Rs.350.
You will file GST with both the sales invoice and purchase bill and pay GST of Rs.7.5.
If Kavya from Mumbai purchases T-Shirt from you (a registered business in say Chennai) for Rs.600, you invoice him for Rs.600.
You place the same order with Qikink for Rs.300, Qikink invoices (with CGST/SGST) you for Rs.300.
You will file GST with both the sales invoice and purchase bill and pay GST of Rs.15.
This explains the GST in India for dropshipping businesses.
This follows a simple tax structure for business with input credit system, where we need to pay tax for the amount earned as margins only.
Frequently Asked Questions
Do I need GST to sell online?
You are required to register for GST when your turnover is more than Rs. 40 lakhs in a financial year. If you are selling goods through e-commerce platforms, GST registration is mandatory regardless of turnover.
Registering for GST can provide numerous benefits, such as claiming an input tax credit, improving your business’s credibility, and complying with legal requirements.
How to calculate GST for a product?
The GST rate depends on the type of product being sold, and it is usually either 5%, 12%, 18%, or 28%. To calculate the GST for a product, you need to multiply the selling price of the product by the applicable GST rate.
For example, if a product costs Rs. 1,000 and the applicable GST rate is 18%, the gross amount would be Rs. 1,180 (Rs. 1,000 + 18% of Rs. 1,000), and the GST amount would be Rs. 180 (18% of Rs. 1,000).