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The Drop shippers also run online businesses having different types of products listed on their websites, these products sold by different sellers located outside Indian territorial boundaries like China.

All about drop shipping

A system where the traders are allowed to sell goods directly to the customer without physically storing goods in the inventory is known as a drop shipment. A drop shipper directly passes the customer order to the third party and then the third party directly ships the order to the consumer. “In short drop shipper is a middleman between two countries exchanging goods”.

For example: – if an Indian company has a partnership with Russia, the US wants to purchase a product from India. In that situation, India passes the US order to Russia and instructs to directly transport the goods to the US.

Why would the customer directly not buy from the manufacturer?

The Drop shippers also run online businesses having different types of products listed on their websites, these products sold by different sellers located outside Indian territorial boundaries like China. If any consumer wants to buy goods he/she simply browse through the website to fulfill his/her requirements.

Drop shipment concept has become rampant in the E-Commerce business sector in today’s era. We all know examples like Flipkart, Amazon, Club Factory, etc.

Advantages:

1. No inventory maintenance cost

As compared to a normal business the dropshipping business does not require any inventory to be stored for supply. The drop shippers need not worry about any inventory damage or loss. Keeping track of inventory would not be a problem so they can focus on business expansion.

2. Low capital required

Since there is no inventory there is no need for the cost of maintaining a warehouse, transportation cost, manufacturing cost, etc. They do not need to invest in any kind of fixed capital.

3. Varieties of products

Since the drop shippers also sell through online websites and they are engaged with more than one seller they have varieties of products in hand from different kinds of sellers. This gives the customer varieties of options to select and hence it gives a boost to the sale

4. The risk involved is minimal

The drop shipping is managed online so there are no loss of inventories, fixed capital or sales returns. All of this loss or risk is taken by the manufacturer. All he/she need to take the goods from the manufacture and sell them to the main customer. So basically there is no risk involved.

5. No fix location required

The only requirement of drop shippers is a good Wi-Fi connection. The seller can actually work from home or anywhere around the world just with the laptop and a good Wi-Fi connection.

Disadvantages:

1. Impossible to control the flow of inventory

Since everything related to inventory that was controlled by a third party due to this drop shipper’s supply becomes uncertain. The buyer has to trust the seller for the supplies of goods because the seller doesn’t have full control over the movement of goods.

2. Low profit

Drop shipping work is just like a commission agent. The commission is when the manufacturer sells the product to the final customer. Drop shipper who takes a little percentage of margins on the good.

“The traders having the number of advantages will also have to face the same number of disadvantages”.

3. Cannot handle supplies

The drop shippers cannot track inventories and thus have a chance of loss because of the unavailability of the product when the buyer needs it. These traders cannot predict any kind of supplies since the supplies are completely managed by the manufacturer, due to this instant demand of any product that cannot be fulfilled by the Drop shipper.

4. Multiple sellers

Basically the drop shipper purchases a variety of goods from different sellers. Problem arises when the final consumers order variety of products together and the trader will have to place the orders separately to individual manufacturers and the date of arrival of those products will also be different which will be unfair to the customers who ordered at the same time and expected to get delivery for all goods at the same time.

Drop shipper registered under GST Registration Online portal, they have to file their GST return as mentioned below;

1.Drop shipper having LUT (Letter of undertaking

Drop shippers can show their sale under GSTR-3B as an export under ‘zero-rated” which means they do not need to pay tax.

2.Drop shipper does not have a LUT (Letter of undertaking)

Drop shippers need to pay IGST on sale value which will be refunded to them as tax credit later on.

Conclusion

Since the drop shippers do not have any inventory in their hand and the product is also not manufactured in the home country, they are not required to pay any tax and they can show their export as zero-rated.

About Post Author

hassanjamili

hey 🙂 My name is Tom Matlack.
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