E-commerce Business Setup in India
India's e-commerce market is projected to reach $200 billion by 2027, making it one of the fastest-growing digital economies globally. With increasing internet penetration, smartphone adoption, and digital payment infrastructure, the sector offers immense opportunities for entrepreneurs and established businesses alike.
This comprehensive guide covers the legal and regulatory framework for starting an e-commerce business in India, including FDI rules, GST compliance, data protection requirements, and operational considerations.
Industry Overview and Market Potential
Market Statistics
- • E-commerce market: $200 billion by 2027
- • CAGR: 25-30% annually
- • Online shoppers: 350+ million by 2025
- • Digital payments: $10 trillion by 2026
- • Tier 2/3 cities: 60% of online shoppers
Key Trends
- • Quick commerce (10-min delivery)
- • Social commerce integration
- • Live streaming commerce
- • Voice-based shopping
- • D2C (Direct-to-Consumer) growth
Business Models in E-commerce
Marketplace Model
Platform connects buyers with third-party sellers. Platform does not own inventory.
- ✓ 100% FDI allowed (Automatic Route)
- ✓ Examples: Amazon, Flipkart
- ✓ TCS at 1% on seller transactions
- ✓ Lower inventory risk
Inventory Model
Platform owns inventory and sells directly to consumers.
- ⚠ 100% FDI allowed only in B2B
- ✓ Examples: DMart, Nykaa
- ✓ Better control over quality
- ✓ Higher margins but inventory risk
Step-by-Step Registration Process
Company Registration
Register as Private Limited Company for credibility and scalability. Minimum 2 directors and 2 shareholders required. Foreign investment allowed in marketplace model.
GST Registration
Mandatory for all e-commerce operators regardless of turnover. Must obtain GST registration in each state where goods are supplied. E-commerce operators must collect TCS at 1%.
Payment Gateway Integration
Integrate payment gateways (Razorpay, PayU, CCAvenue) for online payments. Ensure PCI-DSS compliance for handling card data. Offer multiple payment options including UPI, wallets, and BNPL.
Legal Documentation
Draft essential legal documents: Terms of Service, Privacy Policy, Return and Refund Policy, Seller Agreement (for marketplace), and Cookie Policy. Required under Consumer Protection Rules.
Trademark Registration
Protect your brand name and logo through trademark registration with the Trademark Registry. Prevents brand hijacking and counterfeiting. Essential for brand building.
FDI Regulations in E-commerce
Foreign Direct Investment in e-commerce is governed by the FDI Policy, which distinguishes between marketplace and inventory-based models.
| Aspect | Marketplace Model | Inventory Model |
|---|---|---|
| FDI Allowed | 100% (Automatic Route) | 100% B2B only (B2C prohibited) |
| Inventory Ownership | Prohibited | Allowed |
| Price Control | No control over seller prices | Full control |
| Examples | Amazon, Flipkart | BigBasket (B2B), Zomato |
GST and TCS Requirements
E-commerce GST Rates
- • 5%: Essential goods, food items, books
- • 12%: Apparel, processed foods, furniture
- • 18%: Electronics, most consumer goods, services
- • 28%: Luxury items, automobiles
Tax Collected at Source (TCS)
E-commerce operators must collect TCS at 1% (0.5% CGST + 0.5% SGST or 1% IGST) on net value of taxable supplies. This is collected from sellers and deposited with GST authorities. Sellers can claim credit in their GSTR-2B.
Consumer Protection E-commerce Rules
The Consumer Protection (E-commerce) Rules, 2020 mandate specific compliance requirements for all e-commerce entities operating in India.
Mandatory Disclosures
- • Legal name and address
- • Contact details (email, phone)
- • Grievance officer details
- • Return and refund policy
- • Delivery and shipment terms
Prohibited Practices
- • Misleading advertisements
- • Fake reviews/testimonials
- • Unfair contract terms
- • Refusal to accept returns
- • Price manipulation
Data Localization and Privacy
E-commerce companies must comply with data protection requirements under the Information Technology Act and emerging data protection regulations.
- • RBI Guidelines: Payment data must be stored in India
- • Privacy Policy: Must clearly disclose data collection practices
- • User Consent: Explicit consent required for sensitive data
- • Data Breach: Notification requirements within specified time
- • Cross-border Transfer: Restrictions on transferring personal data abroad
Key Takeaways
Essential Registrations
- ✓ Private Limited Company registration
- ✓ GST registration (mandatory for all)
- ✓ Payment gateway integration
- ✓ Trademark registration
Compliance Focus Areas
- ✓ Consumer Protection Rules compliance
- ✓ TCS collection and deposit
- ✓ Data localization requirements
- ✓ FDI policy adherence