GST for Digital Businesses: Registration, TCS and IGST Rules

GST for digital businesses is not a separate tax regime, but selling online changes how several GST rules operate. Customer location, sales channel and transaction data can determine whether you charge IGST or CGST plus SGST, register for GST, or reconcile marketplace TCS.

A seller using Amazon or Flipkart may face different compliance mechanics from a business selling through its own website. Freelancers, SaaS founders and digital product sellers must also examine place-of-supply and export rules carefully.

GST registration rules for online businesses

GST registration depends on aggregate turnover, type of supply, state and business model. Aggregate turnover is calculated across India on a PAN basis, not separately for each website or platform account.

The general threshold is ₹20 lakh for service providers in most states and ₹10 lakh in specified special category states. For businesses exclusively supplying goods, the threshold can be ₹40 lakh in eligible states, subject to prescribed conditions.

Inter-state supply does not always mean registration from the first rupee. Eligible service providers making inter-state taxable supplies can generally use the normal turnover exemption. However, goods sellers making inter-state supplies may face compulsory registration unless a specific exemption applies.

Small sellers supplying goods through an e-commerce operator can avoid full GST registration under Notification No. 34/2023-Central Tax if they:

• Make only intra-state supplies of goods
• Stay below the applicable turnover threshold
• Sell through the platform in only one state or Union Territory
• Hold a PAN and obtain the required GST portal enrolment number
• Do not make inter-state supplies

This relief does not automatically cover service providers. An e-commerce operator itself must generally register irrespective of turnover.

Place of supply and IGST on online sales

Place of supply identifies the state where a transaction is treated as consumed. It decides whether the supplier charges CGST plus SGST or IGST.

For goods involving movement, the place of supply is generally where the movement ends for delivery. A Maharashtra seller shipping goods to a customer in Karnataka would normally charge IGST. A delivery within Maharashtra would usually attract CGST and Maharashtra SGST.

For most B2B services supplied to a GST-registered customer, the place of supply is the recipient’s registered location. For B2C services, it is generally the recipient’s location when the address is available in the supplier’s records. Otherwise, it may default to the supplier’s location. Special rules apply to services linked to immovable property, events, transportation and certain other categories.

Businesses should collect the customer’s billing address, delivery address and GSTIN at checkout. Incorrect location data can result in the wrong tax being charged and may require later adjustments.

Marketplace TCS, invoicing and GST returns

When a marketplace collects payment for taxable supplies made by third-party sellers, it may collect TCS, or Tax Collection at Source, under Section 52. The applicable TCS rate is 0.5% of net taxable supplies, split as 0.25% CGST and 0.25% SGST for intra-state transactions, or charged as 0.5% IGST for inter-state transactions.

TCS is not an additional cost if correctly reported. The amount appears in the seller’s electronic cash ledger after the marketplace files GSTR-8. Sellers should reconcile platform settlement reports, sales returns, cancellations and GSTR-8 data every month.

TCS generally does not apply merely because a business accepts orders on its own website. It applies when an e-commerce operator facilitates supplies by other sellers and collects the consideration.

A registered supplier must issue tax invoices containing the GSTIN, invoice number, HSN or SAC code, taxable value, tax rate and place of supply where required. E-invoicing, which involves reporting specified B2B invoices to the Invoice Registration Portal for an Invoice Reference Number, applies where aggregate turnover crossed ₹5 crore in any financial year from 2017-18 onwards, subject to notified exclusions.

Regular compliance may include GSTR-1 for outward supplies and GSTR-3B for tax payment and summary reporting. The GST Council’s e-commerce FAQ explains the reporting framework for operators and suppliers.

GST for SaaS, freelancers and cross-border services

GST for digital businesses becomes more complex when customers are outside India. An Indian freelancer, consultant or SaaS company may treat a service as a zero-rated export only when all statutory conditions are satisfied. These include the recipient being outside India, the place of supply being outside India and receipt of payment in permitted foreign exchange or Indian rupees where allowed by the RBI.

Businesses can export under a Letter of Undertaking without paying IGST, or pay IGST and claim a refund, subject to eligibility and documentation. Invoices, contracts, foreign inward remittance records and proof of customer location should be preserved.

OIDAR services, or online information and database access or retrieval services, include highly automated digital supplies delivered over the internet with minimal human intervention. Foreign OIDAR suppliers selling to unregistered customers in India may have to obtain GST registration and pay IGST. An ordinary live consulting or customised design service is not automatically OIDAR merely because it is delivered online.

What GST compliance means for you

GST for digital businesses requires more than checking annual turnover. Review what you sell, where the customer is located, whether a marketplace collects payment and whether the transaction qualifies as an export.

Before launching online, configure invoices to capture customer state and GSTIN. Reconcile marketplace TCS with GSTR-8, monitor the e-invoicing threshold and retain payment gateway and delivery records. For multi-state warehousing, exports or OIDAR transactions, obtain professional advice before deciding the tax treatment. A small setup error can otherwise create interest, penalties and input tax credit disputes later.