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Do I Need GST for Dropshipping?
Last modified: June 12, 2024
Are you planning on selling or purchasing dropshipping goods from India? Then you might be asking: do I need GST for dropshipping? Here is a quick guide whether that is necessary and what steps you should take.
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When Goods are Purchased and Sold within India
If the dropshipper is based in India and the merchant who provides the goods to the seller is also within India, then both parties should register GST if the revenue of the businesses is over the specified limits that are imposed by law.
Remember that the invoice for the products from the merchant is sent to the seller and not the customer. The seller can provide the customer with a receipt or an invoice. It is also important to think that even if the customer is not within the same state/union, then registration is still required, because the location of the customer is not important, only where the location of the supplier and seller.
When Dropshipping Businesses Sell Goods Outside of India but Purchased in India
If you’re selling goods to customers who are in other countries (like the UK, USA, EU, etc.) then you might think that you don’t have to charge GST. However, this is not as simple. The merchant still has to charge you IGST. Therefore, as a seller, you will have to pay GST and you will have to consider this within the costs of your business, especially if you are engaging in dropshipping in specific countries.
However, what you charge your customer can be very different. You have two options because this is counted as an export sale. You can either file for a Letter of Undertaking (LUT) and then you can sell without GST. Or you can charge IGST at the time of the sale but then apply for a refund.
When Dropshipping Products Purchased from Outside India but Sold Inside of India
If you’re selling products from merchants that are outside of India, then you need to consider GST. On the purchase of imported goods, you will have to pay IGST on a reverse-charge basis. This can make this more complicated, but there are accounting apps that can help you with this.
Or you can speak to an accountant who can help you set things up properly.
Dropshipping Products Purchased from Outside India and Sold Outside India
This is when you might sell products that are made by merchants who are not based in India and then sell to international customers. This could be more complicated for some people because you have international taxes to consider. However, the GST rules on this are fairly simple because no business technically takes place within India.
Therefore, you don’t need to register or pay GST when you are buying goods from and selling outside of India.
Understanding GST in Dropshipping
Dropshipping GST Registration
The process of GST registration for dropshipping businesses involves submitting various documents, including PAN, Aadhaar Card, and business address proof.
This registration is crucial for legal compliance and smooth operation of the dropshipping business in India.
Understanding GST Rates for Different Products
GST rates in dropshipping vary based on the product category. It’s important to understand which GST slab your product falls under to ensure accurate tax collection and compliance.
Impact of GST on Dropshipping Profit Margins
GST impacts the profit margins of dropshippers. Understanding how to calculate GST and its effect on pricing strategies is crucial for maintaining profitability.
Key Compliance for GST Dropshipping and Taxation Aspects
Reverse Charge Mechanism in Dropshipping
In certain cases, the reverse charge mechanism applies, where the service receiver pays GST instead of the service provider.
This is particularly relevant for services procured from outside India, like courier or freight forwarding services.
Reporting and Filing GST
Dropshipping businesses must accurately report their sales and purchases in their GST filings.
Transactions that are not considered a supply under GST, like international dropshipping where goods don’t enter India, are not reported in GSTR-1 and GSTR-3B but are required in GSTR-9.
Export Sales and GST Refunds
For goods sold outside India but purchased within, merchants can file a Letter of Undertaking (LUT) to sell without GST or pay IGST and claim a refund later.
Compliance with specific conditions is necessary for availing of these benefits.
Conclusion: Do I Need GST for Dropshipping?
When you’re an Indian dropshipper there are certain tax laws that you must follow. You might want to ask: ‘do I need GST for Dropshipping?’ and the answer is complicated. However, generally speaking, yes you do, but do speak to a tax advisor/accountant when you’re setting up your Shopify business.
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Can I claim Input Tax Credit (ITC) in dropshipping under GST?
Yes, dropshippers registered under GST can claim Input Tax Credit on their purchases. This helps in reducing the tax liability on sales, provided they meet all compliance requirements.
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What are the GST registration thresholds for dropshipping businesses in India?
GST registration is mandatory for dropshippers if their annual turnover exceeds Rs. 40 lakhs for goods or Rs. 20 lakhs for services. However, for northeastern states, the limit is Rs. 10 lakhs.
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How often do I need to file GST returns as a dropshipper?
Dropshippers are required to file GST returns monthly or quarterly, depending on their turnover and the scheme they are registered under. Timely filing is essential for compliance.
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