Ten Things You Need to Know to About Starting Your Own E-commerce Business

E-commerce is estimated to grow to $850 billion by 2020 in India and has been forecasted to grow the fastest in the Asia-Pacific region.  A mass trend of conveniently ordering products and services online has boomed in a short period of 3 years.

With a large chunk of public placing reliance on e-commerce vendors, the business vertical has become popular where a lot of youth and adults are fulfilling their entrepreneurial dreams.

So, to help these ideas brewing out of many homes and garages, here are the top essentials for starting an e-commerce business to ensure compliance

A private limited company or an LLP is a preferred entity for an e-commerce business.

Your first and foremost step after getting incorporated should be to open a current bank account in the name of your legal entity.

The e-commerce website is merely a platform and not responsible for the quality, viability of the goods sold by the third party vendors. This is just one of the most important safeguards. An e-commerce business needs to define clear ground rules for refunds, warranties with their customers for an efficient customer relationship and as a safeguard to disclaim all liability to the customers on part of the e-commerce businesses.

Privacy Policy governs the data collection from the users of your mobile application/ website. Under the IT Act, 2000, as an entity collecting sensitive personal data of public, it is essential that they are informed of exactly what information is collected, how it is stored and for what purpose it is used.

Typically there is a threshold of INR 20 Lakhs for businesses to register for GST. Whereas the for e-commerce businesses, the Goods, and Services Act, 2017, does not provide for any monetary threshold. Hence, GST Registration is MANDATORY for e-commerce businesses.

For the purposes of GST levy, E-commerce is defined to mean the supply of goods or services or both, including digital products over a digital or electronic network.

Vendors are the backbone of an e-commerce platform.  Getting all information of the vendor in the correct manner is one of the key essentials to having a strong vendor relationship. Get a vendor registration form for details, products sold and important information for your database. As you do that, don’t forget to sign a document/ contract with the vendors scoping out the responsibilities and direct liability of the vendors to customers.

A payment gateway setup empowers the e-commerce business to collect money from its customers on its own rather than relying on the vendors and also acts as a safeguard against having to write off the commissions due from the vendors for any sales made through the e-commerce platform. Tying up with third party payment gateways is the best way to set this up.

A good logistics partner for an e-commerce business is like the first handshake.  A good partner to deliver the products listed to the customers in a timely fashion can most of the times make or break an e-commerce business.  

An e-commerce business is known by its brand. It is ultimately the brand value of the business that makes the valuation skyrocket. It is imperative that you protect your brand with a trademark registration and for other intellectual properties keep evidence handy to prove prior usage of the property.

Always maintain a record of your transactions. Any movement of money of the business should be recorded to maintain in order to get an estimate of the financial position of the e-commerce business.

One of the critical tax levies and compliances, the equalization levy is often ignored. Applicable since May 2016, it is to be deducted @6% on the amount paid to a non-resident on payments made to them above INR 1 Lakh for certain specified services. Eg: Advert expense to Linkedin.

As a business, e-commerce serves as one of the best kinds of businesses model which requires low investment and can provide high returns. It remains asset light, does not require heavy inventory holding and relies more on technology, partnerships, and marketing. A structured approach and getting these essentials in place can help you go a long way!