We are in the new India, where everything changes faster. The currency, taxation for businesses and individuals, the standard of vehicles we drive, and much more.
This a new era for the youth of the country to have options to choose from many alternative career options.
In this blog, learn about dropshipping legal requirements in India.
In this blog, know about the GST for Dropshipping businesses in India.
Dropshipping legal requirements in India
Need of GST for Businesses
Digital Entrepreneurs or Nomads work from anywhere, anytime they like.
That is a possibility now, and it is also entirely legal with minimum paperwork with the government.
Anyone can form a simple one-person company with minimum documentation and obtain a GST certificate.
You need to understand one essential thing: once you get a GST, you must inform the government once a month or at least once a year how you are doing.
They need to know after issuing a GST Certificate, right?
There are exemptions to try out or a trial period before enrolling yourself or your business into the GST structure.
That limit was 20L, which increased to 40L from the final year of 2019-2020.
If your business revenue is less than this limit for the financial year, you do not need to file GST.
Set a trial period of 1-3 months, create a primary company, and get a GST certificate.
Once you get GST, you must file monthly GST returns unless enrolled under the composition scheme.
The composition scheme allows you to pay 1% of total turnover if your total revenue is under 2 Crores per year, and there are also other related schemes as well.
We suggest you register your business under regular GST and file returns every month.
You can use tools like Zoho Books (Rs.2500 per year) and file the returns with a 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: A 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.
GST – Goods and Services Tax, GST for Dropshipping Business In India
It is a new tax reform levied at all stages, from manufacturing to consumption, with the credit of taxes paid at previous locations available as input credit.
It 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. HSN codes and Tax rates differ for each product you sell online. You have to refer them before trading online.
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 concerning our print-on-demand and fulfilment business model, which only applies to your B2C transactions.
Under Section 10, Sub-Section 1 (A/B), you(Qikink’s Clients) will be considered a third party. Here, the place of supply will be the principal place of business of the third party. So, Qikink will invoice you with a tax slab as per your state. You can find the invoices on Qikink’s dashboard.
Section 10(1)(b) states, “Where the supplier delivers the goods to a recipient or any
another person on the direction of a third person, whether acting as an agent or otherwise, before
or during the 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 in the direction of a third person, the place of supply will be the location of such third person rather than where the delivery terminates.
Difference between CGST, SGST, and IGST taxes on dropshipping
CGST, SGST, and IGST are all types of taxes levied under India’s Goods and Services Tax (GST) system.
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 how they are collected and distributed among the Central and State Governments for various transactions within and across state borders.
Get GST For Dropshipping
You can easily apply for GST from your auditor with primary documents like a PAN Card, Aadhar Card, Photo, and proof of business address.
Proof of 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 act from their address.
You can get a 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 two monthly returns and one annual return.
The manual entry is only on the first process of filing GSTR1 before the 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 the 20th of every month.
Your buyer purchases from you, and you are sending a sales invoice to him. In this case, you must file all those invoices in GST as GSTR-1 by the 11th of next month.
By the 20th of the month, file GSTR 3B, where all the sales and input tax credits from purchases are declared. (You can also reconcile GSTR-8’s TCS input here if you sell in marketplaces).
Can I Use One GST Number For Multiple Business?
Yes, it is possible to use one GST number for multiple businesses as long as they are located in the same state and have the same PAN number.
However, it’s important to note that each business unit must register separately under GST and file its own tax returns, even if they share the same GST number.
It’s also essential for each business unit to maintain separate records for their sales and purchases to comply with GST regulations.
Example:
Case:1
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.
Case:2
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.
How to pay taxes on dropshipping?
As a dropshipper, you are responsible for collecting and remitting sales tax on orders shipped to customers in states where you have a sales tax nexus. It’s crucial to research and comprehend the tax laws in the states where your customers are located.
Keeping accurate records of your sales and taxes collected will make the tax filing process easier. Seeking the advice of a tax professional is also recommended to ensure compliance with all applicable tax laws.
Taxes can be a bit confusing, so it’s essential to take the time to understand them.
Conclusion
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.
Read more
- How to Start a Dropshipping Business in India?
- T-Shirt Dropshipping: How To Profit From Most Popular Dropshipping Product?
- Dropshipping Meaning: Basics of Dropshipping Business & How Does It Works?
- How to Start Amazon Dropshipping: A Simple Guide
- Dropshipping vs Print-On-Demand: Which Is Profitable in 2023? (A Detailed Guide)
Frequently Asked Questions
Are there specific licenses or permits that are necessary for setting up and running a dropshipping operation in India?
If you’re interested in starting a dropshipping business in India, it’s important to keep in mind that while you do not require any specific licenses or permits, there may be legal and regulatory requirements that you need to fulfill. We recommend seeking legal advice to better understand these requirements.
How does consumer protection law in India apply to dropshipping businesses, and what responsibilities do entrepreneurs have towards customers?
As a dropshipping entrepreneur in India, it’s crucial to ensure that you are complying with consumer protection laws. This includes providing accurate product information, honoring warranties and guarantees, and ensuring timely delivery of products to protect your customers’ rights.
What are the tax implications and obligations that dropshipping businesses should be aware of in India?
Dropshipping businesses in India are subject to taxation laws and must comply with various tax obligations, such as GST registration, filing of returns, and payment of taxes. We highly suggest consulting with a tax expert to better understand the specific tax implications based on the nature of your business and its operations.
Are there any restrictions or regulations concerning the types of products that can be dropshipped in India?
While there are no specific restrictions on the types of products that can be dropshipped in India, it’s important to comply with product safety standards and regulations set by the authorities. Be sure to verify that the products you are selling are legal and not prohibited under any law.
How can dropshipping businesses ensure they are in compliance with intellectual property laws and trademarks in India?
To ensure compliance with intellectual property laws and trademarks in India, it’s recommended to conduct proper research on the products being sold and verify that they are not counterfeit or infringing on any existing trademarks. Seeking legal advice to understand the specific intellectual property laws and regulations that apply to your business is also highly recommended.
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