Updated: Jun 27, 2020
Buying products or services online is very popular these days in India since it is a convenient method of shopping in one click without roaming around in the market. So, Business conducted over the internet is called e-commerce.
Here’s your quick guide on the Legal Requirements to start E-commerce Business in India -
What is E-commerce?
Electronic Commerce is the trading or facilitating the trading of products or services through computer networks, such as the Internet.
To start an e-commerce business, one of the following business registration is required:
Proprietorship firm registration – A Sole Proprietorship is a type of unregistered business entity that is owned, managed and controlled by one person. Sole Proprietorship is the most common form of business in India, used by most micro and small businesses operating in the unorganized sectors. Proprietorships are very easy to start and have very minimal regulatory compliance requirements for starting and operating. So, it's ideal for small businesses and first-time Entrepreneurs who would like to get a taste for business.
Partnership firm registration- A Partnership firm is a business entity created by persons who have agreed to share profits or losses of the business. Partnerships are a very good choice of business entity for small enterprises wherein two or more persons decide to contribute to a business and share the profits or losses.
Private Limited Company- The most prevalent and popular type of corporate legal entity in India. The Ministry of Corporate Affairs governs private limited company registration in India. Companies are incorporated and regulated under the Companies Act, 2013 and the Companies Incorporation Rules, 2014.
LLP (Limited Liability Partnership) – It was introduced in India by way of the Limited Liability Partnership Act, 2008. The basic premise behind the introduction of Limited Liability Partnership (LLP) is to provide a form of business entity that is simple to maintain while providing limited liability to the owners.
One person company- It was introduced through the Companies Act, 2013 to support entrepreneurs who on their own are capable of starting a venture by allowing them to create a single person economic entity. One of the biggest advantages of a One Person Company (OPC) is that there can be only one member in an OPC.
Registration of the Domain name
To attain the security for the domain name under the Intellectual Property Rights, one needs to choose a unique name and preferably it has to be separately trademark protected from an appropriate national registry which gives the exclusive right to use that particular name.
It is very essential to draft the terms and conditions agreement which would usually cover all the user covenants and company covenants in order to restrict the liability of the E-commerce website in every way possible.
Making an agreement for a vendor with well-defined clauses and terms to deal with problems like the default in the product, late delivery, lack in quality, etc and many other provisions which can be included keeping in mind the business model.
VAT registration is a must for starting a proprietary e-commerce website. VAT registration is required for anyone selling goods or products in India and must be obtained from the State’s Sales Tax Department.
Once the Company or LLP is incorporated, a bank account can easily be opened in the name of the business by contacting a Bank. In the case of a Proprietorship firm, VAT registration must first be obtained to open a bank account in the name of the business. The opening of a bank account is essential to obtain a payment gateway for a proprietary e-commerce website.
A payment gateway would be required for a proprietary e-commerce website to process customer payments. A payment gateway provides allow for the website to accept credit card, debit card, net banking, internet banking payments from multiple banks and credit card companies.
Get a Shops and Establishment Licence (in case you want to have an online store and you plan to hire employees). Also, it’s a necessity in the case of Payment Gateway Integration.
CST/VAT: These are the basic taxes that you have to pay when selling goods online but, only once your annual turnover crosses 5 lacs.
Service Tax: This tax is required to be paid if you are offering services online but, only once your annual turnover crosses 10 lacs. Service tax is applicable only to services being provided. For the sale of goods, VAT, excise, and sales tax are applicable.
Professional Tax: This tax is required to be registered if you have one or more employees working under you.
In the case of a sole proprietorship, you can use your own PAN card for taxation purposes. You have to file income tax returns under your name.
The taxes and registrations policies differ from state to state. So, it is advisable to check with your respective state policy regarding these registrations.
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