Drop-shipping tax implications

How is the invoicing done??

Are you getting an invoice from China ?

Hi Syed,

Import duties are generally taken care by your logistic partners. They will pay it on your behalf and claim it from you.

Yes, you have to pay income tax and GST in India apart from the import duty.

In order to give you the concrete tax implications, please let us know how the invoicing is done. Whether you receive any invoice from your supplier?

Whether you give any invoice to your customers?

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

As per the GST regime for e-commerce, following points have to be noted-

1. All suppliers selling goods through e-commerce have to be registered under GST. This means the supplier from China needs to be registered.

2. The e-commerce operator shall charge GST on the commission earned and issue a tax invoice for such provision of service i.e. you have to pay GST on commission so earned.

3. Also, there are TDS and TCS provisions, but they have been deferred and are not applicable right now.

Hi Syed,

We understood what you meant. But unfortunately it's the requirement of GST law that every supplier (whether Indian or overseas) supplying through e-commerce operator has to register in GST.

Accordingly, he has to pay GST in India depending upon the types of goods sold.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Hi Syed,

As per the GST provisions, you fall under the category of an e-commerce operator according to which I made the above replies.

Even we understand such provisions are not easy to be followed. Clarity in this regard is expected from the Government. Also the e-commerce giants like Flipkart and Amazon are appealing to reduce the regulation burdens.

Where would be your customers?

Whether the sales will be in India only? Or all over the world?

Also, let us know whether the dealer from China will be ready to issue an invoice to you.

We'll surely try our best to reach at the best solution. A complete knowledge of the business and transactions would be required.

Alright.

In case sales are in India, what we can do is:

1. Let the dealer from China invoice you.. and not the customer. Since the dealer from China is not registered in GST, you have to pay GST in reverse charge. You can claim it as an input tax credit

2. You invoice the customer in India and charge GST and pay the same.

In this manner, you have to pay GST only on the profit element effectively.

The point of concern would be registration. As per GST, seller of goods have to take registration in all the states in which goods are sold.

In GST, you can claim the GST that has been paid on the goods that you are supplying while discharging your tax liability.

Example

You bought a product for 1000 n paid 180 GST in reverse charge.

You sold the same for 2000 on which 360 GST is to be paid.

Now, while filing the returns and paying your GST liability, claim 180 already paid which means... Now you have to pay 180 only (360-180)

Yes, invoice can be in foreign currency.

GST would be applied to imports in addition to the Basic Customs Duty.

To avoid regulations, you may prefer a proprietorship or partnership (normal partnership firm or LLP) over formation of a company.

Hi Syed,

I jumping on to your last query assuming that earlier queries have been resolved adequately.

You have to pay basic custom duty apart from the GST.

If the product goes directly from China to any country other than India, you will only have to pay GST on differential amount (I.e. on your profit).

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Just to add, you will obviously have to pay income tax at the end of the year on your total profit.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Apart from GST and the custom duty on imports, you'll be liable to income tax.

For sales outside India, it would be considered as an intermediary service by whatever name called such as commission. And you'll be liable to GST on such intermediary service so provided.

There could be tax saving possibilities once the proper functioning and business structure is understood.

You may opt for a phone consultation for a detailed discussion in this regard.

Hello,

I assume that most of your queries mentioned above have been resolved and hence I am focusing only on the last query.

The taxes that you should be taking care of is Income Tax, GST & Import duties.

If you are registered in India then you will be taxed in India. If you are registered abroad then you will not be taxed in India. For such transactions it is preferable to form another company outside India which will help you save on the tax front.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, ACA, LLB-GEN, CERT. FAFP

Hello,

You will be liable for GST, Income Tax & Import Duties if you are registered in India.

In case you have an international sale, you will still be liable for Income Tax.

Regards,

Keerthiga Padmanabhan

M.Com., CA, LL.B