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How to start E-commerce Business in India

Swarit Advisors

| Updated: Feb 16, 2019 | Category: GST, News

With the advancement of smart phones and internet users around the world, e-commerce business is booming and sky rocketing at an unimaginable pace. Your E-commerce store is just a click away from everyone across the globe. However, entering into this business requires a lot of formalities to be fulfilled including the compliances, laws to adhere with, and avoidance of unnecessary litigation against these businesses in the future. In this blog, we will discuss; how to start an E-commerce Business and all the other aspects relating to it.

What is E-commerce business?

E-commerce or Electronic Commerce is a business which involves a commercial transaction for the transfer of information over the Internet. It covers the range of business such as consumer-based retail sites, through action or music sites, to business exchanges for trading goods and services.

Preparing a structure and selection of a business entity for your E-commerce business

It begins with defining the vision for your e-commerce business and setting the goals for the next five to six years. You must have a clear picture of what needs to be done and achieved in those crucial initial years.

Partnership and a Limited Liability Partnership are two viable options for the beginners, but it is always advisable to choose Private limited Company as it attracts the investors for the future growth of your Company.  As, Funds will be required for the growth of your e-commerce business, so the business entity in the form of Private Limited Company will help generate funds through Venture Capitalists. It is always better to have a business structured in the right manner otherwise restructuring will only waste your time, money and other useful resources.

Business model for your E-commerce business

Business model is a blueprint for your E-commerce business. It connects the dots from beginning till the end and dictates every step which needs to be taken for achieving the vision of your company. Business models are made by keeping the terms and conditions, vendor agreements and other legal formalities in mind.  For example, if your business is offering something for free today, but you are contemplating to charge for the similar services in the future from both existing as well as new customers then your business blue prints must specify this data in order to be drafted in the user agreement.

This is just one example; there are several other intricate clauses, laws regarding the e-commerce business which needs to be worked upon well in advance in the business model.

Protecting the Domain Name of E-commerce business

For an E-commerce platform, you need a domain name. Further, you register that domain name, take a seat and start your online business. But, let us inform you that domain name registration doesn’t protect the intellectual rights with respect to the Domain Name.

Domain Name has to be protected through trademark registration. Once you get the trademark registered, it grants you the exclusive rights to use that domain name. The domain name registration has to be renewed. In case of registration lapse, you may lose the right to use the same domain name again. So it is best to get it protected and sealed by trademark registration.

News regarding the E-commerce market in India

  • According to the news published by the “Times of India”, a report released by the consultancy firm Bain & Company states that the online retail market in India has already witnessed a compound annual growth rate (CAGR) of 53% between 2013-2017. This growth is majorly caused by the aggressive discounted rates, advancement in delivery infrastructure and increased number of smart phone users.
  • In February 2018, the FSSAI issued a guideline according to which every e-commerce FBO (Food Business Operator) needs to obtain FSSAI license for commencing the business.
  • Every e-commerce business is required to GST registration, irrespective of their annual turnover.

Business Privacy Policy as per the Law

For all the E-commerce portals, stating the privacy policies is a mandatory task. The privacy policies for your business have to be drafted well. Well laid out privacy policies will prevent your business from being sued under the Section 43A of the Information Technology Act, 2000. In case of being caught for the breach under the above technology Act, you may have to pay the penalties up to Rs. 5 crores.

Terms and Conditions of an online business

Terms and conditions of any E-commerce business work as the binding force between the E-commerce Company and Users. A good and well-written draft of terms and conditions covers all the user covenants and company covenants. These terms and conditions also limit and restrict the liability of E-commerce Company in every way possible.

Vendor Agreement for E-commerce Business

In a market place E-commerce model, Vendor Agreement is the Magna Carta of Vendor-Portal relationship. Your Vendor agreement must be clear-cut, explicit and have well-defined clauses for dealing with the default, delivery, quality, termination and commission and many other major provisions which are related to the business model of your online business.

User Agreement of Online Business

User agreement is made to secure the user’s right. It acts as an Intermediary between your online business portal and Consumers. This, in turn, restricts the liability of the E-commerce business. The most important clause while drafting a User Agreement is to include the terms of change or updation of terms of User Agreement.  And it is the user’s responsibility to keep them updated before carrying out any transaction.

Keeping the Data Secure: Adherence to cyber law crimes

If you are naïve and just getting started, there may be a possibility that you may skip to invest in cyber security. But let us inform you that cyber security is a delicate and sensitive issue. If you fail to have data security for your E-commerce business, then you may have to bear the penalty up to Rs. 5 crores.

Who is Handling your Taxation?

As per the business model of your E-commerce platform, you have to focus on the aspects of taxation too. There are certain taxation compliances that need to be adhered by the E-commerce ventures and in case of non-compliance, these businesses are held liable. The e-commerce owner need to pay 30% tax on the profit earned after deduction of expenses . Apart from this the timely tax returns with the IT department is to be filed. Occasions may arise where by presentation before the IT department via charted accountant and practicing CS may arise. One need to be well equipped to handle such legal notices. Hence it is highly recommended to hire a well established tax consultant in this regards. You can contact Swarit Advisors, their experts will help in avoiding these non – compliances.

Payment Gateway: how transactions will take place

For running an online business, you must have a payment gateway to process customer payments. Usually, a single payment gateway is enough as it accepts debit card, credit card, net banking, and internet banking payments from multiple banks. If you are selling products or providing services through online Market places, then you do need a separate payment gateway. You just need a bank account, in which the profits will be credited.

GST Registration

GST registration is mandatory for E-commerce businesses. No matter what will be your business turnover you have to obtain the certificate of GST Registration.

Scope of E-commerce Business

With the launch of 4G networks and smart phones, people have entirely engaged themselves with the internet. Reports say that India has the second highest number of internet users in the world. Furthermore, the number is witnessed to be growing with each passing day. This enormous growth has already led to ever-increasing e-commerce opportunities in India and around the world.

Market size and future

Led by Amazon India, Paytm Mall, and Flipkart, the online sales retail in India is estimated to have grown by 31 percent to touch US$ 32.70 billion in 2018 approximately. However, the Indian e-commerce market is anticipated to rise to US$ 200 billion by 2016 from US$ 38.5 billion in 2017.

Reasons why you must set your foot in this E-commerce Bubble

  • Increasing number of internet users
  • All time high usage of smartphones
  • Ease of doing shopping
  • Saving of time and mobility
  • Discounted online rates pulling the offline customers

Conclusion:

As we know that for starting an E-commerce business, you need to prepare a business structure, and select an appropriate business entity. In addition to this, there are so many legal compliances such as defining the terms and conditions, business privacy policies, making of user and vendor agreement.

Further, you need to take care of filing returns such GST returns, income tax returns, etc. and there are many other businesses and legal complexities involved in running an E-commerce business. Doing all these by yourself is impossible.

But don’t you worry Swarit Advisors have helped a number of E-commerce businesses to flourish in the past. For any help or consultation, please contact Swarit Advisors.

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Swarit Advisors

Swaritadvisors.com is technology motivated platform establishing the specialized legal & Financial advisory services in India. We are dedicated to helping startups and MNC in solving legal, Taxation and compliance related to starting and running their business around the world.

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