GST FOR DROPSHIPPING

What is Dropshipping?

Dropshipping is an extremely popular E-business model that works as intermediaries (merchant) between the supplier and the end consumer. In the dropshipping business, the dropshippers receive the order from the consumers and transfer it to the manufacturer/supplier. Now, the supplier directly delivers the order to the consumers. These merchants earn commission by selling the products of manufacturers.
The benefit of dropshipping business is that the merchant doesn’t have to handle the product directly and does not require to maintain his/her own stock.
While operating the Dropshipping business, you need to pay two types of taxes:
• Goods and Service Tax (GST)
• Income Tax

GST Applicability & Rate For Dropshipping :

Dropshipping can be international, domestic, or both, depending on the supplier and the consumers’ location.

Case I:

Supplier: Outside India (Say US)
Consumer: Indian customers
Business Registration: India
GST Implication: A business registered in India is liable to pay GST subject to the GST registration based on the turnover limit. Hence, in such a case, the supplier is liable to collect GST on sales made to the Indian customers and pay the GST on the 20th of every month.

Case II

Supplier: Indian
Consumer: Indian customers
Business Registration: India
GST Implication: A business registered in India is liable to pay GST subject to the GST registration based on the turnover limit. Hence, in such a case, the supplier is liable to collect GST on sales made to the Indian customers and pay the GST on the 20th of every month.

Case III

Supplier: Outside India
Consumer: Outside India
Business Registration: India
GST for dropshipping Implication: The Supplier is dealing with the consumer outside India. Here, the merchant receives an order from the consumer outside India and fulfill its order directly from the supplier outside India.
Since the goods are delivered from suppliers outside India to consumers outside India and have not entered India’s custom barrier, it shall neither be considered as Import nor the export. Therefore, No GST shall be applicable.

Rate of GST For Dropshipping

The rate on dropshipping business shall be based on the slab under which the particular product falls into. (You can refer the latest rate list of GST on goods).
The commission earned by the merchant shall be liable to GST@18%.
Income Tax On Dropshipping
Dropshippers are earning income in India; hence they shall be liable for the Income-tax. The income from the dropshipping business would be considered as “Business income” and taxable as “Income under heads Profits & Gains from Business and Profession.”

Documents Required For GST Registration for dropshipping business:

• PAN of the applicant
• Aadhaar Card
• Photograph and Authorized signature of the owner
• Address proof of the place of business
• Bank account details/Cancelled cheque
• Partnership deep/incorporation certificate, as the case may be

Also Read: Company Registration for Dropshipping, Shopify on Dropshipping, GST Registration 

Conclusion

We have understood the dropshipping business model and its tax compliances. So legally speaking, if you are exclusively engaged in international drop-shipping, you aren’t required to pay GST. However, in the domestic dropshipping, the supplier shall be liable to GST depend upon the type of product dealing.