In this guide
How marketplace TDS works
Section 194-O requires an e-commerce operator to deduct tax when it facilitates a resident seller’s sale of goods or services through its digital platform. An operator generally owns, operates or manages the platform.
Section 194-O has applied since 2020. The TDS rate was reduced from 1% to 0.1% effective 1 October 2024. The ₹5 lakh exemption for eligible individual and HUF sellers is also not new.
For credits or payments up to 31 March 2026, Section 194-O of the Income-tax Act, 1961 applies. From 1 April 2026, the corresponding rule is under Section 393(1), Table serial number 8(v), of the Income-tax Act, 2025. The rate and small-seller exemption continue under the new Act.
| Rule | General treatment |
|---|---|
| TDS rate | 0.1% of the gross sale or service amount |
| Small-seller exemption | No TDS if the participant is an individual or HUF, annual gross sales or services do not exceed ₹5 lakh, and PAN or Aadhaar has been provided to the operator |
| Deduction time | Earlier of credit to the seller’s account or payment |
| Person responsible | E-commerce operator |
The ₹5 lakh exemption applies only to individual and HUF participants who meet all the conditions. Other participants do not get this exemption.
How is the amount subject to TDS calculated?
TDS is calculated on the gross amount of sales or services facilitated through the platform, not on the seller’s profit. A customer’s direct payment to the seller still counts if the platform facilitated the sale.
For example, if an individual seller’s annual gross sales through a marketplace are ₹8 lakh and the seller has provided PAN or Aadhaar, the exemption does not apply because sales exceed ₹5 lakh. If no other exception applies, TDS at 0.1% on ₹8 lakh is ₹800. TDS is generally calculated on the full gross amount once the exemption conditions are no longer met, not just the amount above ₹5 lakh.
TDS is a tax credit for the seller. It does not determine the seller’s final taxable income or tax liability. Report the income using the appropriate ITR form and claim the eligible TDS credit separately.
TDS reporting and seller records
For transactions under the 1961 Act, the operator generally reports deductions in Form 26Q and issues Form 16A to the seller. From 1 April 2026, use the forms and procedures applicable under the new Act.
Compare marketplace statements with your tax records. Check the tax credit information on the Income Tax e-Filing portal for the relevant year and confirm that the credit is linked to the correct PAN. If TDS is missing or incorrect, contact the operator and request a correction.
Keep:
- Marketplace settlement statements and sales reports;
- Invoices and records of refunds or cancelled orders;
- TDS certificates and credit information;
- Payment records and bank statements; and
- Annual gross sales or services across platforms.
TaxClear’s ITR filing guide explains the return process. For the transition to the new Act, see its guide to TDS and TCS changes effective from 1 April 2026.
Common points to check
- The ₹5 lakh test is based on gross sales or services during the year, not profit or the amount left after platform fees.
- A direct customer payment may still count if the platform facilitated the sale.
- Check the annual total across marketplace transactions, not just one order.
- Do not report only the amount deposited in your bank after TDS deductions.
Frequently asked questions
Is TDS under Section 194-O deducted at 0.1%?
Yes. The rate was reduced to 0.1% from 1 October 2024 and continues under the corresponding provision of the Income-tax Act, 2025.
Does the ₹5 lakh exemption apply to every marketplace seller?
No. It applies to an individual or HUF whose annual gross sales or services do not exceed ₹5 lakh and who has provided PAN or Aadhaar to the operator.
Is TDS deducted only on the amount exceeding ₹5 lakh?
Generally, no. If the exemption no longer applies, TDS is calculated on the gross amount subject to the provision.
Does marketplace TDS settle my income tax?
No. It is a credit against tax payable. You still need to report your income and claim the eligible credit in your return.
What if the TDS credit does not appear in my tax records?
Check that the operator has your correct PAN details. Contact the operator and ask it to correct the TDS reporting if needed.
