While India is poised for strong growth in e-commerce, currently less than 10 per cent of India’s 80+ million small businesses sell online, writes Ritu Bhandari. Photo for representation: PTI
The hesitation of small businesses to register under GSTN is not to evade tax but to avoid the cumbersome and time-consuming registration and returns filing process.
LAST UPDATED: August 12, 2021, 15:46 IST -Ritu Bhandari
Indian e-commerce is at a nascent stage and is expected to gain solid growth in line with global trends. Social commerce and digitizing small kiranas across the country are likely to drive e-commerce in tier-2 cities and beyond.
There are around 13 million kiranas in the country, each with an average of 100–200 transactions daily. Transforming even 10 per cent of them could boost retail consumption by more than 5 per cent and generate about 3.2 million new jobs, according to Accenture and TRRAIN.
MSMEs, with 63 million units, form 90 per cent of all Indian enterprises, employ over 120 million people and contribute significantly to the GDP. This excludes over 15 million unregistered home-run enterprises like small boutiques and mom-and-pop stores.
Rough estimates show that MSMEs contribute 30 per cent to GDP and over 40 per cent of total exports. Yet, 85 per cent of MSMEs remain unregistered. Of the 13 million firms registered under GSTN, only around 9 million currently file GSTR 3B.
Currently, less than 10 per cent of India’s 80+ million small businesses (including mom-and-pop stores) sell online. Less than 15 per cent of the Indian retail market is organized.
The market in India needs a supportive ecosystem, similar to China, for exponential e-commerce growth. With more Indians entering entrepreneurship, formalization is necessary. However, very small businesses often cannot bear the cost and complexity of compliance.
Under Section 24(ix) of the CGST Act, 2017, anyone supplying through an e-commerce operator must register for GST, even if their turnover is below the threshold. The same business operating offline would not need GST registration until reaching ₹40 lakh turnover. This creates a disadvantage for digital businesses.
These online sellers include many individuals and homemakers with turnovers below the registration threshold. Offline suppliers are exempt from GST registration up to ₹40 lakh, but online sellers aren’t, leading to policy disparity.
Meesho, a social commerce platform, notes that it has to reject more than 70 per cent of small suppliers due to lack of GST registration. Their supplier base could otherwise be three times larger.
What Can Be Done
- Relax GST requirements for online MSMEs. Apply the same threshold to both online and offline businesses.
- Allow e-commerce platforms to discharge GST on behalf of unregistered MSMEs with turnover below the threshold under Section 9(5) of the CGST Act, charging a flat 5 per cent GST.
- If this is implemented, such MSMEs need not register under Section 24(ix) and could be exempt from filing monthly returns.
- This would increase government tax collection since previously untaxed goods would now be taxed via the platform.
- This approach aligns with current provisions for service providers such as:
- Radio taxis (Ola, Uber)
- Accommodation services via Oyo, Makemytrip (unless individually liable)
- Housekeeping services like UrbanClap
Periodic Compliances
MSMEs using e-commerce platforms face multiple compliance burdens, including monthly return filings and TCS reconciliation. Without automation, reconciling TCS and tracking credits becomes extremely difficult.
For mobile-first users, GST processes are complex. The GST portal and filing system is hard to navigate, acting as a deterrent rather than an enabler for small online sellers. As a result, many stick to offline selling, missing out on the reach of e-commerce.
Reluctance to register under GST is due to the cumbersome process—not to evade taxes. Simplifying the GST portal and compliance structure is essential for empowering small sellers.
Udyam Aadhaar registration can be made mandatory for all online sellers. This Aadhaar for businesses could be used to track their activity levels and eliminate the need for unnecessary GST registration.
The intention of threshold exemptions is to reduce MSME burden. Applying mandatory GST registration only to online sellers violates that very principle.
India, a leader in digital payments, has an opportunity to integrate small suppliers and entrepreneurs nationwide into the e-commerce and social commerce ecosystems. By doing so, it can tap new markets, eliminate geographic boundaries, and support India’s journey towards a $5 trillion economy.