E-Commerce Taxation Policy



E-commerce revolution is said to be the greatest revolution in the industry after the great industrial revolution in 20th century, but at that time only Europe and United States were benefitted from this revolution but now in this e-commerce revolution even India will be a great beneficiary.

Today e-commerce business have changed the very nature of the tradition business. Now by the virtue of the e-commerce business there is no need of the physical presence of the goods and shop. All one need is a website and affiliation of the same with a bank account.

The main issue the government of various countries are facing is the issue related to the taxation. As the website is accessible around the globe and people around the globe purchases goods from these website. The main problem that arises out of these international trade is of international taxation and how the seller will be safeguarded from double taxation.

Current fundamental principles of taxations are as follows:-

  1. Residence Based Taxation: – A taxpayer is taxed on the total income that he earns throughout the world in a country of its residence. But in case of company it is taxed where it was incorporated, registered.
  2. Source Based Taxation: – in case a company is having its source of income in another country then it is subjected to tax, but even this is protected by the international taxation law treaties.
  3. Permanent Establishment: – As per OECD Tax convention an enterprises which provide service abroad is taxable in the country when it conduct business only if it has PE there.

The main problem that arose in e commerce business is the permanent establishment and as the definition in OECD treaties ecommerce business is not covered within its ambit

So as per this the following things comes into picture:-

  1. Whether a site-owner will be held liable to pay income tax for mere accessibility of a website.
  2. Whether the presence or the location of serve will constitute the permanent establishment.

Even though the websites are subjected to 2 main categories of tax:-


Sale tax is levied on those e-commerce business which store the goods and in turn when demanded displaces to the customer.in the concept of sales tax two sub concept of interstate sale and intrastate sale arises and in case of intrastate sale the sale tax that is levied is different and rate varies from that of interstate sales, because in interstate sale the central sales tax act 1956 will be applicable in which the rate of taxation are different from the former.

But in case the website is only for the purpose of marketing and they only provide the service but don’t hold any sort of physical presence of goods than service tax is payable on such commodity.


So while analyzing the present issue only one thing can be concluded that is there is a serious need to overlook the tax policies of the world. So as per the current scenario these website won’t be held liable to pay the tax as the tax is paid on the physical establishments and thus the stance of various website namely Flipkart, Amazon, etc. over the tax related issue stands correct.

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