Electronic Transactions and Taxation Issues
Tax law's answer to online selling has been the same every time: make the platform responsible.
Tax law was built around a seller with a shop, an address and a ledger. Electronic commerce breaks each of those assumptions: thousands of small sellers sell through one platform, a service can be delivered from a server abroad with no office in India, and the platform, not the seller, often collects the money. Unit 12 of the syllabus is about how Indian tax law responds.
The answer, in GST and in income tax, has been the same: make the platform responsible. The e-commerce operator collects or pays tax on behalf of the sellers it hosts and reports their sales, because it is the one party the tax department can see and reach. For a banker this is not abstract: merchant accounts, payment aggregators and nodal accounts for marketplaces all sit on these flows.
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GST Terms for E-Commerce
- Electronic commerce
- The supply of goods or services or both, including digital products, over a digital or electronic network (CGST Act section 2(44)).
- Electronic commerce operator (ECO)
- Any person who owns, operates or manages the digital or electronic facility or platform for electronic commerce (section 2(45)). An online marketplace is the typical example.
- Tax collected at source (TCS)
- An amount the ECO keeps back from the payment due to a seller and deposits with the government. The seller later takes credit for it.
- OIDAR services
- Online information and database access or retrieval services, such as streaming or cloud subscriptions. A supplier abroad selling these to unregistered persons in India must register under section 24.
How GST Reaches E-Commerce
Operator pays the tax
Section
9(5)
What it requires
For services the government notifies, the ECO pays GST as if it were the supplier. The first notified categories were cab rides booked through an app and hotel or guest-house accommodation.
Compulsory registration
Section
24
What it requires
Every ECO required to collect TCS, every seller supplying through such an ECO, and every overseas supplier of OIDAR services or online money gaming to people in India must register, whatever their turnover.
Tax collected at source
Section
52
What it requires
The ECO collects TCS on the net value of taxable supplies made through it by other suppliers, pays it within ten days after the month ends, and files a monthly and an annual statement.
| Mechanism | Section | What it requires |
|---|---|---|
| Operator pays the tax | 9(5) | For services the government notifies, the ECO pays GST as if it were the supplier. The first notified categories were cab rides booked through an app and hotel or guest-house accommodation. |
| Compulsory registration | 24 | Every ECO required to collect TCS, every seller supplying through such an ECO, and every overseas supplier of OIDAR services or online money gaming to people in India must register, whatever their turnover. |
| Tax collected at source | 52 | The ECO collects TCS on the net value of taxable supplies made through it by other suppliers, pays it within ten days after the month ends, and files a monthly and an annual statement. |
TCS Rate: What Changed in 2024
Section 52 of the CGST Act caps central TCS at 1%, with matching state laws. The rate notified in 2018 was 0.5% of central tax plus 0.5% of state tax, 1% in total on an intra-State sale. From 10 July 2024 the notifications were amended to 0.25% each, so 0.5% in total. Older material shows the 1% figure.
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Equalisation Levy: A Tax on Non-Resident Platforms
- check_circleThe equalisation levy sits in Chapter VIII of the Finance Act, 2016, outside the Income-tax Act. It was designed to tax foreign digital businesses earning from Indian users without having a permanent establishment in India.
- check_circleThe Finance Act, 2020 extended it with a 2% levy on consideration received by non-resident e-commerce operators from e-commerce supply or services to people in India, or to anyone using an Indian IP address.
- check_circleThat 2% levy does not apply to consideration received on or after 1 August 2024. The government withdrew it after businesses raised concerns that its scope was ambiguous and compliance heavy.
- check_circleThe original 2016 levy on payments to non-residents for online advertising was a separate charge. Courseware written before these changes may describe both as current; confirm the present position before relying on either.
Income Tax Has a New Act
Income-tax law also makes e-commerce operators deduct tax at source on payments to sellers. Under the Income-tax Act, 1961 this was section 194-O. From 1 April 2026 the Income-tax Act, 2025 replaced the 1961 Act, with new section numbers throughout, so a 194-O reference in older study material points to the old law.
How the IIBF Exam Tests This
- check_circleWho collects TCS under GST: the e-commerce operator, not the seller and not the buyer's bank.
- check_circleWhich section: 52 for TCS, 9(5) for the operator paying tax on notified services, 24 for compulsory registration.
- check_circleWho the equalisation levy targets: non-resident digital businesses without a permanent establishment in India, not Indian sellers.
- check_circleTiming traps: the 2% equalisation levy ended for consideration from 1 August 2024, and the GST TCS rate halved from 10 July 2024.
FAQs
What is TCS under GST for e-commerce operators?expand_more
Tax collected at source under section 52 of the CGST Act. The operator collects it on the net value of taxable supplies made through its platform by other sellers and pays it to the government by the tenth of the next month. The combined rate has been 0.5% since 10 July 2024.
Is GST registration compulsory for selling on an online marketplace?expand_more
Section 24 of the CGST Act makes registration compulsory for sellers supplying through an e-commerce operator that must collect TCS, regardless of turnover. The government can exempt classes of suppliers by notification, so check the current notifications before advising anyone.
Is the equalisation levy abolished?expand_more
The 2% levy on e-commerce supply or services does not apply to consideration received on or after 1 August 2024. The original 2016 levy on online advertising was a separate charge, so confirm its current status separately.
What is section 9(5) of the CGST Act?expand_more
It lets the government notify services on which the e-commerce operator, not the actual supplier, pays the GST. Cab rides and hotel accommodation booked through a platform were the first such services.
Next steps
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