How do E-Commerce Websites in India fund Discounts
The three major e-commerce companies in India—Flipkart, Amazon and Snapdeal—all operate as marketplaces. That is mostly because Indian law doesn’t permit FDI in e-commerce sites that sell directly to customers, but allows it in marketplaces that link sellers and buyers. As direct retail is banned, marketplaces are not permitted to practice control over the item costs of the sellers on their platforms, including on the matter of discounts. Discounts are fundamental for e-commerce firms. Customers have taken to online shopping in a huge manner, generally in light of the lucrative discounts offered by e-commerce firms.
Let’s look at the way the in which the following sites provide discounts -
After comparing prices with other websites, Amazon prescribes the amount of discounts to its sellers on products, but doesn’t compel them to adopt these proposed prices. Sellers, on the other hand, wind up keeping these proposed prices in light of the fact that Amazon funds the discounts. Toward the end of a certain period, sellers send a debit note to Amazon titled "promotional funding". This note contains the amount of discounts that the sellers gave on apparel, electronics, toys and other products sold on the site. Amazon then pays the seller by cheque and in some cases, also gives additional money as the seller’s margin. This debit note is over and above what Amazon collects from the customer. The debit note also includes service tax that the seller collects from Amazon on the amount of the discounts. The seller then pays the service tax to the central government. Case in point, if a product priced Rs.100 is sold for Rs.70 by a seller on Amazon, the online retailer will gather Rs.70 from the customer, keep a cut for itself, and give the remaining returns to the seller. At that point, Amazon will likewise give the seller an extra add up to record for the discount offered by the merchant. This sum could be Rs.30 or lower. This technique conceivably represents an issue for state tax authorities. Duty is normally charged on the item when there's a transfer of ownership. In the case of e-commerce, sales tax is collected on the cost of the product and then on the price at which it is sold to the final customer. On the off chance that an item is sold on a site beneath the cost price as it happens now and again then the tax gathered from the customer is much lower than what was paid initially. For this situation, the dealer would possibly be qualified to get a duty discount from the concerned state tax department.
WS Retail Services Pvt. Ltd, a vender on Flipkart, represents more than 75% of the site's deals. For items sold by WS Retail, Flipkart doesn't store discounts. In any case, with different venders, Flipkart recommends prices yet not at all like Amazon doesn't regularly pay the measure of discounts to dealers by cheque. Rather, it renounces commissions or listing charges that marketplaces typically charge their dealers. Amid Flipkart's Big Billion Day deal, huge numbers of the venders apart from WS Retail were basically guaranteed a certain sum and discounts were just about completely supported by Flipkart. Merchants were paid through bank transfer by Flipkart. With WS Retail, however, Flipkart has a closer business relationship. WS Retail was owned by Flipkart fellow benefactors Sachin Bansal and Binny Bansal (unrelated) until September 2012. The Bansals and two of their relatives were likewise board parts at WS Retail. In September 2012, the Bansals were compelled to offer an expansive stake in WS Retail to previous Onmobile Global Ltd boss working officer Rajeev Kuchhal, weeks before the Enforcement Directorate propelled an examination concerning the organization's business association with WS Retail. Both the Bansals and their relatives surrendered their board seats, as well. Tapas Rudrapatna and Sujeet Kumar, known to be near to the Bansals, control 46% of WS Retail. Rudrapatna and Kumar were employed by Flipkart in any event until September 2012. Their email addresses are still those of Flipkart, however Sujeet Kumar is recorded as a permanent employee of WS Retail in reports with the Roc.
Like Amazon, Snapdeal also finances part or full discounts given by most of its sellers. Snapdeal pays sellers by Real Time Gross Settlement, a form of Internet banking, or by cheque. Snapdeal refers to the discounts as “promotional expenses”. During Snapdeal’s Buy One, Get One promotional offer, sellers were paid for both products by Snapdeal, which charged its commission fee only on one item.
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