Taxation of E-Commerce and Digital Services in India

India’s tax framework addresses digital commerce through GST obligations on platforms and suppliers, alongside measures that historically targeted non-resident digital businesses. These rules raise questions of tax compliance and platform accountability in a cross-border economy.

GST Framework for E-Commerce Operators

The Central Goods and Services Tax (CGST) Act, 2017 defines an “electronic commerce operator” (ECO) in Section 2(45) as a person who owns, operates or manages a digital or electronic facility or platform for electronic commerce. GST places specific registration, collection and payment responsibilities on such operators.

• Registration: ECOs are generally required to register under Section 24(ix), subject to statutory exceptions. Suppliers using a platform must meet applicable registration requirements, although exemptions may apply in specified cases.
• Tax collected at source: Under Section 52, an ECO collects TCS on the net value of taxable supplies made through its platform by other suppliers, where the consideration is collected by the operator. The current rate is 0.5%, reduced from 1% with effect from July 10, 2024.
• Supplier credit: The operator deposits TCS with the Government. The amount is credited to the supplier’s electronic cash ledger and may be used towards the supplier’s tax liability.
• Inter-State transactions: The applicable GST treatment depends on the nature and place of supply. Inter-State supplies attract IGST; TCS collected by an operator is accounted for under the applicable GST provisions.

Section 9(5) creates a distinct rule for specified services supplied through an ECO. In notified cases, the operator pays GST as if it were the supplier, where the actual service provider is not liable to register. This shifts the compliance responsibility to the platform for those supplies; it does not make the operator liable for GST on every transaction carried out through its platform.

Principles of India’s GST System

India introduced a dual GST system on July 1, 2017, replacing multiple central and state indirect taxes with a common framework. GST is levied at successive stages of production and distribution, with input tax credit intended to reduce tax cascading.

• Dual structure: Intra-State supplies generally attract CGST and State GST (SGST). Inter-State supplies and imports attract IGST.
• Destination-based levy: GST revenue is assigned principally to the jurisdiction where goods or services are consumed, rather than where they are produced.
• Input tax credit: Eligible businesses can generally credit GST paid on business inputs against output tax liability, subject to statutory conditions and restrictions. The ultimate burden is ordinarily borne by the consumer.
• GST Council: Established under Article 279A of the Constitution, the Council is chaired by the Union Finance Minister and includes state finance ministers. It recommends GST rates, rules and other measures to the Union and States.

Equalisation Levy: Historical Measures

India introduced the Equalisation Levy (EL) to address certain digital transactions involving non-resident businesses without a conventional physical presence in India. The levy’s earlier provisions are important for understanding the development of digital taxation, but they are no longer in force.

• Online advertising: The Finance Act, 2016 introduced a 6% levy on specified payments to non-residents for online advertising, digital advertising space or related facilities, where aggregate payments exceeded INR 1 lakh in a financial year. This levy ceased to apply from April 1, 2025.
• E-commerce levy: The Finance Act, 2020 introduced a 2% levy on consideration received by a non-resident ECO for specified e-commerce supplies or services. The scope included supplies to Indian residents and, in specified circumstances, non-residents or persons using an Indian IP address.
• Threshold and exclusions: The 2% levy applied when aggregate consideration exceeded INR 2 crore in a financial year. It excluded supplies effectively connected with an Indian permanent establishment and cases where the 6% levy applied. The 2% levy was withdrawn from August 1, 2024.

International Taxation and Digital Services

Digital services can be supplied across borders without a substantial physical presence in the customer’s jurisdiction. This complicates the allocation of taxing rights and the attribution of profits, making nexus, compliance and platform accountability central issues in digital economy regulation.

• OECD/G20 Inclusive Framework: Its work on Base Erosion and Profit Shifting (BEPS) addresses tax challenges arising from the digitalisation of the economy.
• Pillar One: Seeks to reallocate part of the taxing rights over the profits of the largest and most profitable multinational enterprises to market jurisdictions where customers are located.
• Pillar Two: Establishes a framework for a 15% global minimum effective tax for in-scope multinational enterprises; it is not a universal 15% tax on every company.

Key Prelims Takeaways

• Section 2(45) of the CGST Act defines an electronic commerce operator.
• Section 52 provides for TCS on specified platform supplies; the current rate is 0.5%.
• Section 9(5) makes an ECO liable for GST on specified services in qualifying cases.
• Intra-State supplies generally attract CGST and SGST; inter-State supplies and imports attract IGST.
• GST is destination-based, and eligible input tax credit helps prevent cascading.
• The GST Council is a constitutional body established under Article 279A.

Recent Context

The GST Council’s 57th meeting recommended 5% GST without ITC on goods-delivery services supplied through ECOs, excluding postal and courier services. Notification No. 09/2026-Central Tax (Rate), issued October 27, sets November 1, 2026, as the effective date. Nasscom requested deferral to January 1, 2027, citing implementation challenges.