GST on Overseas Drop Shipment Transactions: Key Insights The door-to-door business is a type of business enterprise where the products are sold by a seller but are not under their custody. When a seller receives a final order for a product from a customer, they resubmit the order details to the supplier for the product, either the manufacturer or the wholesalers, to supply to the customer. For instance, a customer with the name Rohit maintains a website where ladies' handbags can be bought. Rohit has a contact with a wholesaler with the name prateek. Now, when Mahesh places an order for a product on Rohit's website, the amount is received by rohit and he sends a bill to Mahesh. After that, Rohit pays the amount, and he sends a bill to Mahesh. After that, Rohit places an order for the product with Prateek, and Prateek supplies the product.
This model allows sellers to avoid upfront inventory costs and the risk of unfilled stock, making doorshoring a low-risk, marketing-focused business.
Note: Marketplaces like Amazon and Flipkart
GST Implications on Dropshipping in Various Scenarios Goods Purchased and Sold Within India Scenario: Rohit (seller) sells goods sourced from Prateek (wholesaler) to Mahesh (customer) within India.
GST Treatment:
Prateek issues a tax invoice to Rohit.
Rohit claims Input Tax Credit (ITC) on the purchase.
Rohit issues a tax invoice and charges GST to Mahesh.
GST Registration: Required if turnover exceeds 40/20/10 lakhs. Also required for inter sate supplies.
Goods Purchased in India and sold outside India:
Scenario: Goods are purchased within India and sold outside India by a registered merchant.
Supplier: can also opt for a concessional GST rate of 0.1 IGST or 0.05% CGST plus 0.05% SGST as per notification no.40/2017 CT
GST Registration: Required if turnover exceeds the threshold or if reverse charge liability arises.
Goods Purchased from Outside India and Sold Within India Scenario: Goods are imported from China and sold to customers in India.
GST Treatment:
Importer (merchant) pays IGST on import under reverse charge.
Merchant issues a tax invoice to an Indian customer and charges GST (CGST/SGST or IGST).
Input Tax Credit of IGST paid on import can be claimed.
GST Registration: Mandatory irrespective of turnover due to reverse charge applicability.
Goods Purchased Outside India and Sold outside India Scenario: Goods are imported from China and sold to customers in India.
GST Treatment: The importer merchant pays IGST on import under reverse charge.
The merchant issues a tax invoice Indian customer and charges GST
Input Tax Credit: IGST paid on import can be claimed.
Goods Purchased Outside India and Sold Outside India Scenario: Indian business purchases goods from China and sells to customers in the US, without the goods entering India.
GST Treatment:
As per Schedule III of the CGST Act (Para 7) , this is neither a supply of goods nor services .
No GST applicable.
GST Registration: Not required even if turnover exceeds threshold (unless import of services triggers RCM).
Reverse Charge Mechanism (RCM) in Dropshipping Under GST, reverse charge applies when the recipient of goods services is liable to pay GST instead of the supplier.
Import of Services: If a dropshipper avails services from a third party for entities (e.g., web hosting, digital marketing, inspection services), RCM may apply.
Test for Import of Services: A service qualifies as an import if:
Supplier is outside India
Recipient is outside India
Place of supply is in India
Place of Supply Clarification:
Inspection Services: As per section 13(5) of IGST Act, if inspection is conducted outside India, the place of supply is outside India. Hence not an important of services.
Transportation Services: If destination is outside India, then place of supply is also outside India — not an import.
Digital Services (e.g., web tools, ad platforms): These are import of services – GST payable under RCM.
Mandatory GST Registration: Even if turnover is below threshold, registration is compulsory if liable to pay GST under reverse charge.
Suggested Read: GST on Third-Party Exports: Key Insights and Compliance
Special Benefits: Notification No. 40/2017- CT Rate For domestic suppliers goods to registered merchants for export, GST rate can be reduced to 0.1% IGST or 0.05% CGST + 0.05% SGST , subject to conditions:
Export to be made within 90 days of invoice.
Supplier’s invoice and GSTIN must appear in shipping bill.
Merchant must be registered with an Export Promotion Council or Commodity Board.
Movement must be from supplier to port/ICD/warehouse designated for export.
Merchant to provide proof of export and invoice copy to supplier and tax officer.
If export is not completed in 90 days, full GST becomes payable.
Conclusion Dropshipping is an efficient and cost-effective model,but requires careful handling of GST implications based on the transaction structure weather goods are sourced domestically or internationally, and sold within or outside India. Compliance with GST laws in essential to avoid penalties and optimise tax benefits such as ITC or concessional tax rates.
For professional advice or GST compliance support in your dropshipping business, contact our team today.
Suggested Read: Impact of GST on the Agricultural Sector: Key Insights
FAQS Do i need to report transactions not considered supply under GST in GSTR-1 or GSTR-3B? No, such transactions are not reported in GSTR-1 or GSTR-3B.
Do Such saled need to be reported in any GST return? Yes, in 5F of GSTR-9
Do I pay GST on a US-based website subscription? Yes, if the place of supply is India, GST is payable under RCM.
Can I claim a refund of ITC if my outward supplies are not taxable under GST? No, refund is not allowed if outward supplies are not taxable under GST.
Is GST registration needed if I only dropship from China to US? No, unless you import services liable to GST under reverse charge.
.png)
-compressed.jpg)
.jpg)
.png){kind=small}
.png){kind=small}
.png){kind=small}
.png){kind=small}
