The e-commerce TDS rate under Section 194-O is 0.1% of the gross value of goods or services sold through a digital platform. There is no 0.5% rate. The 0.1% figure has applied since October 1, 2024, after the Union Budget 2024 cut the rate down from 1%.1Income Tax Department. TDS Rates It applies from the first rupee for most sellers, and only above ₹5 lakh in annual platform sales for individuals and Hindu Undivided Families who have furnished PAN or Aadhaar.
Why You May Have Seen a 0.5% Figure
Section 194-O has never prescribed a 0.5% rate at any point in its history. When the section took effect on October 1, 2020, the rate was 1% of gross sales.2Press Information Bureau. CBDT Issues Guidelines Under Section 194-O of the Income-tax Act, 1961 The Union Budget 2024 reduced it to 0.1%, effective October 1, 2024, to ease working-capital pressure on online sellers.1Income Tax Department. TDS Rates For assessment year 2026–27, the operative rate remains 0.1%. Any reference to 0.5% withholding for e-commerce sales is inaccurate.
Who Deducts and Who Is Covered
The e-commerce operator carries the entire withholding obligation. Under the statute, an operator is any entity that owns, operates, or manages a digital platform connecting buyers and sellers.3Income Tax Department. Section 194-O Large marketplaces and niche platforms are both covered. The deduction must happen at the earlier of two events: when sale proceeds are credited to the seller’s account, or when payment is actually made.
Even when a buyer pays a seller directly rather than routing funds through the platform, the statute treats that payment as if the operator made it, and the operator still owes TDS on the full amount.3Income Tax Department. Section 194-O This closes what would otherwise be an obvious workaround.
Section 194-O covers only resident Indian sellers. Non-resident sellers fall outside this section entirely and face separate provisions such as the equalization levy. If you’re a non-resident seller, the 0.1% rate discussed here does not apply to your payments.
The ₹5 Lakh Threshold
Operators are not required to deduct TDS from an individual or HUF seller whose gross platform sales stay under ₹5,00,000 during the financial year, but only when two conditions are both met: the seller’s total sales must remain below ₹5 lakh, and the seller must have provided PAN or Aadhaar to the operator.3Income Tax Department. Section 194-O
If either condition fails, the 0.1% deduction applies from the first rupee. For sellers that are companies, partnerships, LLPs, or any other non-individual entity, no threshold exists at all. The operator must deduct regardless of the sales volume.
Once Section 194-O applies to a payment, no other TDS provision applies to that same amount. This prevents double deduction. The exception is advertising revenue or other services the operator supplies that aren’t connected to facilitating the sale itself.3Income Tax Department. Section 194-O
What the 0.1% Is Calculated On
The 0.1% applies to the gross amount of the sale, not to the operator’s commission or the seller’s net profit.1Income Tax Department. TDS Rates GST treatment depends on timing. When GST and other taxes appear separately on the invoice at the time of credit, the operator deducts TDS on the sale amount excluding those taxes. When the operator pays before an invoice is raised, TDS is calculated on the full payment since the tax component isn’t yet identified.
A short example. A seller invoices ₹10,000 for goods plus ₹1,800 GST. If TDS is deducted at the time of crediting and the invoice already exists, the base is ₹10,000 and TDS comes to ₹10. If payment happens before any invoice is raised, the base is the full ₹11,800.
When the Rate Jumps to 20%
Sellers who fail to provide PAN or Aadhaar face a much higher deduction under Section 206AA. Instead of 0.1%, the operator must withhold at 20% of the gross amount, or the rate otherwise applicable under the section, whichever is higher. For Section 194-O, that effectively means 20%, because the standard rate is far below it.
This is one of the most common compliance traps on platforms with many small sellers. Operators typically collect PAN or Aadhaar at onboarding to avoid it. For sellers, having 20% of revenue held back until an annual return produces a refund can severely strain working capital.
Deposit Deadline
After deducting the tax, the operator must deposit it with the central government by the 7th of the month following the month of deduction.4Income Tax Department. Tax Payments Tax deducted in March can be deposited by April 30. Deposits go through the e-Pay Tax facility on the Income Tax Department’s e-filing portal.
Missing the deposit deadline attracts interest at 1.5% per month from the date of deduction to the date of actual payment. Failing to deduct in the first place attracts a separate 1% per month, running from the date the deduction should have been made.5Income Tax Department. TDS Compliance Both charges treat any part of a month as a full month.
Quarterly Returns and Seller Credit
Operators report all Section 194-O deductions on Form 26Q each quarter. The due dates for FY 2025–26 are July 31, 2025 (Q1), October 31, 2025 (Q2), January 31, 2026 (Q3), and May 31, 2026 (Q4). Returns are filed through the Income Tax Department’s e-filing portal.
Once processed, the TDS credit appears in each seller’s Form 26AS, the consolidated tax credit statement.6Income Tax Department. Online View Through E-filing Website The operator also issues Form 16A to the seller, recording the amount deducted, the nature of payment, and the operator’s TAN.7Income Tax Department. Download Form 16A Online – TDS Certificate
The withheld tax isn’t a cost. It’s a prepayment against the seller’s annual income tax liability, claimed as credit at return-filing time. If cumulative TDS exceeds the actual liability, the excess is refunded. Sellers should check Form 26AS after each quarterly filing deadline; a missing entry usually points to a filing error on the operator’s side and is easier to fix promptly than to contest after a demand notice.