Ecommerce sellers benefit from improved cash flow due to GST reduction

24 June, 2024
Summary :

The GST council's recommendations aim to benefit suppliers on online platforms and real money gaming firms through tax changes, including a reduction in the tax collected at source for electronic commerce operators.

Ecommerce sellers benefit from improved cash flow due to GST reduction

Sellers, brands, and some restaurants operating on online commerce platforms anticipate cash flow benefits from the Goods and Services Tax (GST) council's recommended reduction in tax collected at source (TCS).

On Saturday, the council recommended reducing the TCS collected by electronic commerce operators—including those in ecommerce, quick commerce, and food delivery segments—from 1% to 0.5%.

Sellers on ecommerce and quick commerce platforms, particularly those with smaller teams, often accumulate tax credits from TCS over a significant period before redeeming them, due to the cumbersome process involved, shared a seller of home and kitchen products active on Amazon and Flipkart.

"The change won't have a significant impact on profitability, but it will significantly help in freeing up cash flow that we can reinvest into the business... This is a huge boost for businesses like ours that operate on single-digit percentage net margins," added the seller.

However, according to business owners and tax lawyers speaking to ET, restaurants selling through food delivery platforms, such as those offering biryani and pizza, categorized as services under the current tax regime, are subject to a 5% GST. This GST is collected directly by platforms like Swiggy or Zomato from the customer and remitted to the government.

However, products such as ice creams, desserts like cakes, and packaged beverages attract a higher GST rate and are classified as goods. "For instance, in the case of an ice cream seller, the platform collects the total amount inclusive of all taxes, deducts its commission, and then passes on the amount, including GST, to the restaurant. However, during this transfer, the restaurant also deducts 1% as TCS," explained Hanish. The GST rate on ice creams is 18%, whereasat 12% for desserts like cakes and 28% for packaged beverages.

Therefore, only the sale of products like ice creams and desserts will benefit from the reduction in TCS. AnkitNagori, founder of cloud kitchen firm Curefoods, which includes the dessert brand CakeZone, explained to ET that only 20% of their overall business, focused on desserts, will see these benefits. However, the remaining 80%, which operates under brands like Eatfit and Sharief Bhai, will not benefit from the TCS reduction.

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Disclaimer: The recommendations, suggestions, views, and opinions expressed by experts are their own and do not reflect the views of RR Finance. This blog is for information purpose only, not an investment advice.

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