TDS 194-O at 0.1%: What Ecommerce Sellers Must Know

What section 194-O covers

Section 194-O of the Income-tax Act, 1961 applies to an ecommerce operator, meaning the marketplace that runs the digital platform. When it facilitates the sale of goods or services by an ecommerce participant (you, the seller), the operator must deduct income tax before paying you.

Three points to keep clear:

• The marketplace is the deductor. You do not deduct anything on your own marketplace sales.
• The TDS is an advance income tax, not an extra cost. You claim it as credit when you file your return.
• It is separate from GST TCS under Section 52 of the CGST Act. Both can appear in the same settlement, and they are reported and claimed in different places.

Note that the Income-tax Act, 2025 renumbers provisions for periods from 1 April 2026. Check with your tax adviser which section reference applies to the period you are reconciling.

The 0.1% rate and where to confirm it

The rate under 194-O was 1% when the provision began in October 2020. It has been cited as 0.1% for payments from 1 October 2024, following the Finance (No. 2) Act, 2024. Because rates change through Finance Acts, do not rely on an article alone, including this one.

To confirm the rate applicable to a specific payout:

• Read the TDS line in the marketplace's settlement report and note the percentage it applies.
• Check the rate chart on the Income Tax Department website or ask your chartered accountant.
• Review the TDS clause in your seller agreement or tax annexure.

A higher rate can apply if your PAN or Aadhaar is not furnished to the marketplace. The exact rate and conditions for that case are in the Act, so confirm them before assuming anything.

Applicability and the ₹5 lakh threshold

The threshold is narrower than many sellers assume. Under 194-O, no TDS applies where the participant is an individual or HUF, the gross amount of sales facilitated during the financial year is ₹5 lakh or less, and the participant has furnished PAN or Aadhaar to the operator.

• Companies, LLPs, partnership firms and other entities do not get this exemption. TDS applies from the first rupee.
• The limit is measured on gross sales facilitated by that operator in the financial year. Check with your adviser how it applies if you sell on several marketplaces.
• If you cross the limit, ask your adviser how the marketplace will treat deduction going forward and on earlier payouts in the year.

If your income is low or your tax liability will be lower than the TDS, you may apply for a lower or nil deduction certificate under Section 197. Processing takes time, so apply early in the year.

What amount TDS is calculated on

194-O applies to the gross amount of sales facilitated, not to your net payout after commission. That is why the TDS can look large compared with your margin on a low-profit order.

Two points often cause confusion:

• GST component. CBDT guidance issued in 2020 allowed TDS to be computed excluding GST where GST is shown separately in the invoice or payment record. Check whether your marketplace follows this by reading its TDS statement.
• Returns and cancellations. The way a marketplace adjusts the TDS base for returned or cancelled orders can differ from the way it nets the sale in your settlement. Ask for the working rather than assuming.

Compare the base the marketplace used with your own sales register for the same period. If they differ, find out why before the quarterly return is filed.

Reconciling TDS with settlements and Form 26AS

TDS only helps you if it reaches your tax account. The marketplace deposits it with the government and reports it in its quarterly TDS return. You can then see it in Form 26AS and the Annual Information Statement, and the marketplace issues Form 16A.

A practical monthly check:

1. Take the TDS amount shown in each settlement report.
2. Total it by quarter and compare with the marketplace's TDS certificate.
3. Compare it again with what appears in Form 26AS once the quarterly return is filed.
4. Raise a query with the marketplace for any mismatch in PAN, amount or period.

Doing this by hand across thousands of orders is slow. MarketplaceMetrics by Fundle reconciles marketplace sales and settlements for Indian brands, so TDS lines can be checked alongside commissions, fees and returns. Myntra Excel reports are reviewed today, and other marketplaces are part of scope discussions.

Common mistakes to avoid

• Assuming the ₹5 lakh exemption applies to every seller. It covers only individuals and HUFs.
• Not furnishing PAN or Aadhaar to the marketplace, which can trigger a higher rate or loss of the exemption.
• Confusing TDS with TCS. Claim each under its own head and keep both reconciled.
• Waiting until return filing to find that credit is missing from Form 26AS.
• Using an old rate in cash flow planning. Recheck after each Finance Act.