Tax Deducted at Source (TDS) is a mechanism where tax is collected at the point of certain payments and deposited with the government on the recipient's behalf. Section 194O of the Income-tax Act governs TDS on e-commerce transactions.
This guide sets out the TDS rate under Section 194O, the threshold that triggers deduction, who must deduct, and the deposit and return-filing compliance that follows.
What is Section 194O?
Section 194O requires an e-commerce operator to deduct TDS on the gross amount of sales of goods or services facilitated through its platform for e-commerce participants.
Rate, threshold and who deducts
| Nature of payment | E-commerce transactions |
|---|---|
| TDS rate | Standard 1% (reduced to 0.1% from 1 October 2024 — verify the current-year rate) |
| Threshold | Gross sales up to ₹5,00,000 exempt for individual/HUF sellers who furnish PAN/Aadhaar |
| Who deducts (deductor) | E-commerce operator (marketplace) |
| Whose income (deductee) | Seller on the platform |
| Time of deduction | At credit or payment to the participant |
Key points
- Applies to sellers on marketplaces such as online retail, food delivery and ride platforms.
Compliance for the deductor
- Deduct at the right time. Deduct TDS on e-commerce transactions at credit or payment to the participant.
- Deposit to the government. Pay the deducted tax by the 7th of the following month (special dates apply for March and for Form 26QB).
- File the TDS return. Report the deduction in the quarterly TDS return (Form 24Q/26Q/27Q as applicable) on the TRACES/e-filing system.
- Issue the TDS certificate. Give the deductee Form 16/16A so they can claim credit in their return.
How the deductee claims credit
TDS deducted under Section 194O appears in the deductee's Form 26AS and Annual Information Statement (AIS). It is adjusted against the final tax liability when the deductee files their income tax return, and any excess is refunded.
Frequently asked questions
Do online sellers get TDS deducted?
Yes, the marketplace deducts TDS on your gross sales; you claim it as credit in your ITR.
What happens if TDS is not deducted?
The payer can face disallowance of the expense, interest at 1%–1.5% per month, and penalties. It is important to deduct and deposit on time.
By when must TDS be deposited?
Generally by the 7th of the month following deduction (30 April for amounts deducted in March), with separate rules for property-related challans.