GST Council allows small online sellers to use warehouses in other states

Small online sellers in India will be able to register in states where they have no premises by using an ecommerce operator’s warehouse as their principal place of business, under changes approved by the country’s Goods and Services Tax (GST) Council on Thursday.

The Council said the current rule, which requires a place of business in every state where a seller supplies, has kept small sellers within their home states while larger sellers sell across the country.

At its 57th meeting, the Council also said platforms built on different commercial models will be taxed on the service actually delivered. The same delivery will bear the same tax, whichever way it is routed.

A seller using the facility must keep a physical presence in at least one state, which will remain his home state. He may hold one registration per permanent account number in a state, limited to supplies made through platforms. The operator’s consent will be given automatically by the system.

More than 90 per cent of sellers supplying through platforms have turnover below ₹2.5 lakh a month, so the facility can be opened to them without revenue risk, the Council said. A seller who crosses that threshold will move to ordinary registration.

Executives said the move removes one of the structural barriers that has made it harder for small businesses to sell nationally. “In effect, digital commerce infrastructure can now help provide some of the physical infrastructure required for a small seller to participate in the national market,” said an executive.

Until now, a seller had to maintain a registered place of business in every state it supplied. In practice, that meant having its own warehouse or premises. Under the new rules, small sellers may declare the warehouse of an electronic commerce operator in another state as their principal place of business.

Executives called it a long-awaited step that could help smaller sellers scale up. “It is a good move by the government and gives smaller sellers an opportunity to become big,” said an ecommerce industry executive. “It comes late, but better late than never.”

Sachin Agarwal, a tax partner at EY India, said the recommendations bring relief to the ecommerce ecosystem. “Automated refunds for excess cash ledger balances will directly unlock trapped tax collected at source funds, easing working capital,” he said. Combined with automated amendments to quickly update registration details such as dark stores, “these reforms boost operational agility”, Agarwal said. “We await the fine print and official notifications.”

On platforms, the Council said those built on different commercial models have been interpreting the same provision differently. As a result, the same delivery to the same customer has carried different tax treatment, depending on how the platform arranges its contracts.

Some executives see a larger policy opportunity that still needs to be addressed in the taxation of different digital-commerce models. They said they understand the rationale that the same service should not attract different tax treatment simply because platforms structure their contracts differently.

“But we should be careful that tax neutrality doesn’t become tax uniformity,” said an executive.

The person said different digital commerce and logistics models can have very different economics in terms of inventory, warehousing, fulfilment, technology, capital intensity, and risk. A marketplace, an integrated fulfilment network and a quick-commerce model may all ultimately deliver a product to a consumer. But they create value and invest in infrastructure in very different ways.

Ecommerce executives said GST policy should increasingly recognise this. They said the objective shouldn’t be to give any particular platform a tax advantage. “It should be to create a framework that is neutral between business models but encourages investment, productivity, and modern logistics infrastructure,” said a person.

Beyond ecommerce, executives said the meeting marks a meaningful evolution of GST because the Council is moving beyond rate rationalisation towards making the system simpler, more technology-led and less intrusive. The larger shift, they said, is from compliance through deterrence to compliance through data and detection.

The Council changed no rates at the meeting. It said rate matters will be taken up once a year, at one meeting set aside exclusively for the purpose.

The GST Council also highlighted that platforms built on different commercial models have been reading the same provision differently, so the same delivery to the same customer has carried tax differently depending on how the platform arranges its contracts. This is especially true for ride hailing platforms such as Uber, Rapido and Ola.

For instance, among ride-hailing platforms there are two models: commission-based and subscription. Under the new GST rules there will be no distinction based on the structure of contracts, and tax will be applicable on the service that it delivers.

Ecommerce executives said restricting transit checks to the source and destination states, with checks driven by intelligence, should reduce friction in national supply chains. Faster refunds, automated processing, and greater use of system-based risk assessment should also release working capital and reduce the day-to-day compliance burden.

Executives said decriminalisation measures are important in that context. Removing the power of arrest, raising the prosecution threshold, and reducing general penalties should help create a more proportionate tax environment. The system should be tough on genuine fraud, they said, but routine mistakes, delays and interpretational issues shouldn’t carry the same consequences as deliberate evasion. “That distinction is important for business confidence, particularly for smaller entrepreneurs,” said a person.

Overall, industry executives see the meeting as a good step in modernising GST, citing simpler compliance, proportionate enforcement, greater use of technology, and fewer physical interventions. “The next opportunity is to make the tax architecture more aligned with the way India’s digital economy and supply chains are actually evolving,” said a person.