Section 194O of the Income Tax Act,1961: TDS on E-Commerce

Introduction

Section 194O of the Income Tax Act introduced TDS on transactions facilitated through e-commerce platforms. It required an e-commerce operator to deduct tax from payments made or credited to resident sellers and service providers using its digital platform.

The Income tax Act, 2025, came into force on 1 April 2026. Accordingly, the provisions of Section 194O of the Income Tax Act are now covered under Section 393(1), Table Serial No. 8(v) of the Income tax Act, 2025. Although the section number has changed, the primary rules relating to the TDS rate, timing of deduction, direct customer payments and exemption for eligible individuals and HUFs continue.

What Is TDS on E-Commerce?

TDS on e-commerce means tax deducted by an e-commerce operator from the amount payable to a resident seller or service provider using its platform.
The operator must deduct TDS at the earlier of:

• Crediting the amount to the account of the e-commerce participant; or
• Paying the amount through cash, bank transfer, cheque, or any other mode.
• The applicable rate is 0.1% of the gross amount of sales, services or both. Section 393 specifies a nil general threshold, which means the provision can apply from the first transaction unless the participant qualifies for the specific individual or HUF exemption.

Operators can also refer to Ebizfiling’s new TDS rates chart to understand the updated section-wise TDS rates applicable from FY 2026-27.

Applicability of Section 194O of the Income Tax Act

Section 194O of the Income Tax Act, now corresponding to Section 393(1), Table Serial No. 8(v), applies when:

• An e-commerce operator facilitates the sale of goods, services, or both.
• The transaction takes place through a digital or electronic platform.
• The seller or service provider is a resident e-commerce participant.
• The sales or service amount is paid or credited to the participant.
• The transaction is connected with the platform operated or managed by the operator.

The provision can apply even where the customer pays the seller directly and the payment does not pass through the operator’s bank account.

Threshold Limit of Section 194O of the Income Tax Act

Section 393(1), Table Sl. No. 8(v) specifies a nil general threshold. Therefore, TDS may apply from the first transaction for companies, LLPs, partnership firms and other resident entities.

However, section 393(4), Table Sl. No. 11 provides an exemption where all the following conditions are satisfied:

• The e-commerce participant is a resident individual or HUF.
• The gross amount of sales or services during the tax year does not exceed ₹5 lakh.
• The participant has furnished a valid PAN or Aadhaar number to the operator.

If the gross amount exceeds ₹5 lakh during the tax year, the exemption ceases to apply. TDS is then calculated on the entire gross amount and not merely on the amount exceeding ₹5 lakh.

TDS Rate When PAN Is Not Furnished

The normal TDS rate on e-commerce transactions is 0.1%. However, where the e-commerce participant does not furnish a valid PAN, tax must be deducted at the higher of:

• The rate specified in the applicable provision;
• The rate or rates in force; or
• 5%.

For payments covered under section 393(1), Table Sl. No. 8(v), this will ordinarily result in TDS at 5%.

Section 397(2) expressly provides the 5% minimum higher rate for payments covered under Table Sl. No. 8(v).

Are Direct Customer Payments Covered?

Yes. Direct payments made by customers are also included while calculating TDS.

Suppose a customer orders a service through an online platform but pays the service provider directly. The amount is treated as if it had been paid or credited by the e-commerce operator.

The operator must include that amount in the gross transaction value for calculating TDS. This rule prevents transactions from escaping TDS merely because the consideration did not pass through the operator.

Example of TDS Calculation

ABC Private Limited sells products through an online marketplace. During May 2026, the marketplace facilitates sales worth ₹2,00,000 for the company.

The TDS calculation will be:

₹2,00,000 × 0.1% = ₹200

The marketplace must deduct ₹200 when the amount is credited or paid to ABC Private Limited, whichever occurs earlier.

The ₹5 lakh exemption will not apply because ABC Private Limited is a company. The exemption is restricted to eligible resident individuals and HUFs.

Applicability to Non-Resident Sellers

Section 194O of the Income Tax Act and Section 393(1), Table Serial No. 8(v), apply to payments made to resident e-commerce participants.

Therefore, this specific e-commerce TDS provision does not apply to a non-resident seller or service provider. However, this does not automatically mean that no TDS is required.

Payments to non-residents must be separately examined under the provisions governing payments to non-residents and any applicable Double Taxation Avoidance Agreement.

Interaction with Other TDS Provisions

Section 393(1), Table Sl. No. 8(v), takes precedence over other TDS provisions for the same e-commerce transaction. Accordingly, where tax is deducted under this provision, tax is generally not deducted again under another TDS provision. However, where the transaction is also covered by the specific provision relating to virtual digital assets, TDS is deducted under the VDA provision. Payments received by an e-commerce operator for hosting advertisements or providing services unrelated to the facilitated sale may be examined separately under the applicable TDS provision.

Section 194O Renumbered under the Income tax Act, 2025

Under the new provision, TDS applies to any amount relating to the sale of goods or provision of services by an e-commerce participant where the transaction is facilitated through an e-commerce operator’s digital or electronic platform.

Read about the new TDS and TCS forms applicable from 1 April 2026, including Form 140 and Form 131.

Guidance on E-Commerce TDS Rules

Determining TDS on e-commerce transactions may require a review of seller status, direct customer payments, discounts, returns, transaction-linked charges and PAN details.

Ebizfiling’s tax consultancy services can assist with:

• Applicability review under Section 194O of the Income Tax Act and Section 393
• Review of the marketplace transaction structure
• Guidance on transaction records and reporting requirements
• Consultation relating to notices or incorrect transaction values

Speak with Ebizfiling’s tax consultants to understand how the e-commerce TDS provisions apply to your business.

Conclusion

Section 194O of the Income Tax Act brought online sellers and service providers within the TDS reporting system. It requires an e-commerce operator to deduct TDS at 0.1% on the gross amount of sales or services facilitated through its platform.

From 1 April 2026, the corresponding provision is Section 393(1), Table Serial No. 8(v) of the Income tax Act, 2025. E-commerce operators should update their agreements, accounting systems, and compliance references to reflect the renumbered provision while continuing to follow the applicable rate, threshold, and reporting requirements.

Frequently Asked Questions