Taxation of E-commerce Companies

Taxation of E-commerce Companies: The 2026 Compliance Guide for Operators and Sellers

Indian e-commerce is now subject to four simultaneous tax layers: Section 194-O TDS deducted by the operator on every seller payout, GST TCS collected under Section 52 and reported in GSTR-8, corporate income tax on the operator's own profits (including Significant Economic Presence rules for foreign platforms), and the OECD Pillar Two global minimum tax that has replaced the standalone equalisation levy for large MNE groups. If you run a marketplace, a D2C brand, an ONDC seller app, or a quick-commerce operation, each layer carries its own deadlines, its own penalty structure, and its own reconciliation requirement — and none of them pause for the others.

The Tax Framework: Four Parallel Obligations

Before diving into rates and forms, a clear map prevents the most common structural confusion — sellers assuming that TDS and TCS are alternatives rather than simultaneous deductions.

Both TDS and TCS are withheld from a single seller remittance. They are recoverable — TDS as income-tax credit, TCS as GST credit — but only if the operator files correctly and the seller reconciles promptly. Gaps in either column create working-capital problems that cascade through the seller's quarterly filings.

Section 194-O TDS: What the Operator Must Deduct

Who Qualifies as an "E-commerce Operator"?

Section 194-O defines an e-commerce operator as any person who owns, operates, or manages a digital or electronic facility or platform for facilitating the sale of goods or services. The definition is deliberately broad. It covers:

• National marketplaces (Amazon India, Flipkart, Meesho, Myntra, Nykaa)
• Food and hyperlocal aggregators (Zomato, Swiggy, Blinkit, Zepto)
• Travel and hotel online travel agents or OTAs (MakeMyTrip, Cleartrip)
• Ride-hailing aggregators (Ola, Uber)
• ONDC buyer apps and seller apps where payment settlement flows through them
• Any subscription or gifting platform that facilitates third-party seller transactions

Platforms that provide only a classified listing without handling payment settlement generally fall outside the scope — but CBDT's administrative practice has been to interpret "facilitate" broadly, so seek a written legal opinion if your fund-flow is non-standard.

Calculating on the Gross Amount

The rate is 1% of the gross amount of sale, and CBDT circulars have confirmed this base includes GST. Operators who calculate TDS on the net sale price (after stripping GST) are under-deducting — a costly error.

Formula: > TDS = 1% × (product price + GST + any ancillary charges billed to the seller)

If a product is priced at Rs. 10,000 with 18% GST, the gross amount is Rs. 11,800. TDS = Rs. 118. The seller receives the balance net of this TDS, and also net of GST TCS (discussed below).

PAN, Aadhaar, and Higher-Rate Provisions

Individual and HUF sellers are exempt from Section 194-O deduction if both conditions are satisfied:

1. Total gross sales through that operator in the financial year do not exceed Rs. 5 lakh
2. The seller has furnished a valid PAN or Aadhaar to the operator

If either condition fails, TDS applies from rupee one. Where PAN is absent, Section 206AA kicks in and the rate rises to 20% — the higher of the rate in the provision (1%) or 20% under 206AA. Separately, where the seller has a PAN but is a "specified person" — meaning they have not filed income-tax returns for each of the two preceding years and the TDS or TCS credit in each of those years exceeded Rs. 50,000 — Section 206AB applies, raising the rate to 5% (the higher of twice the applicable rate, i.e., 2%, or 5%). Operators must query Form 26AS or TRACES for non-filer flags before processing large payouts.

Form 26Q: Quarterly Due Dates for FY 2026-27

Late filing of Form 26Q attracts a fee of Rs. 200 per day under Section 234E, capped at the tax amount. Failure to deduct draws interest at 1% per month on the short-deducted amount; failure to deposit after deduction draws interest at 1.5% per month. Form 16A (the quarterly TDS certificate issued to sellers) must be generated from TRACES and issued within 15 days of the due date of the relevant Form 26Q.

GST TCS Under Section 52: The Monthly Collection and GSTR-8

Rate, Base, and the Critical Distinction from TDS

Every GST-registered e-commerce operator must collect Tax Collected at Source (TCS) at 1% of the net taxable value of supplies made through the platform. For intra-state supplies this splits as 0.5% CGST + 0.5% SGST; for inter-state supplies it is 1% IGST.

The base differs from TDS. Section 194-O TDS is on the gross amount including GST. Section 52 TCS is on the net taxable value excluding GST. Both deductions co-exist on the same transaction, calculated on different bases.

Supplies by unregistered sellers are outside the Section 52 TCS obligation. Supplies made by the operator from its own stock (as principal, not marketplace) are also outside the obligation — TCS applies only to third-party seller transactions facilitated through the platform.

Filing GSTR-8: A Step-by-Step Sequence

GSTR-8 is the monthly return through which operators report TCS collections and remit them to the Government. You cannot use ITC to pay TCS — the liability must come from the electronic cash ledger.

1. Log in to the GST Portal (gstin.gov.in) → Services → Returns → GSTR-8
2. Select the tax period (month and FY 2026-27)
3. Table 3: Enter net value of taxable supplies made through the platform, broken by state (intra-state / inter-state), seller-wise
4. Table 4: Report amendments to prior months' data if applicable (negative values are permitted)
5. Table 5: Verify the auto-populated supplier-wise TCS summary before submission
6. Pay the TCS liability through the cash ledger — use the "Pay Tax" button, generate the challan, and complete payment before filing
7. File using DSC or EVC before the 10th of the following month

Due date example: GSTR-8 for May 2026 must be filed and TCS remitted by 10 June 2026.

Late-fee calculation for GSTR-8: Rs. 100 per day per Act (CGST + SGST) = Rs. 200 per day, subject to a maximum of Rs. 5,000 per return. A national marketplace with 36 state and UT GSTINs faces Rs. 200 × 36 = Rs. 7,200 per day of delay before per-return caps kick in — a powerful argument for automating the filing pipeline.

How the Seller Claims TCS Credit

Once the operator files GSTR-8, the TCS amount auto-populates in the seller's GSTR-2B for that month. The seller claims this as a credit in Table 9 of GSTR-3B, reducing their net GST cash payment. If the operator files late, the credit does not appear in GSTR-2B on time — the seller must either wait or address it under the disputed-credit mechanism. Late GSTR-8 filing by a large marketplace can simultaneously freeze TCS credits for thousands of sellers, making the 10th deadline a genuine business-continuity issue for the operator's seller ecosystem.

Mandatory GST Registration for All E-commerce Sellers

Section 24(ix) of the CGST Act creates a compulsory registration requirement for every person who supplies goods through an e-commerce operator — with no minimum turnover threshold. A handloom weaver doing Rs. 80,000 per year on a craft marketplace must register for GST.

Narrow exceptions:

• Suppliers of services only (not goods) below the normal threshold (Rs. 20 lakh, or Rs. 10 lakh in special category states) are exempt from this mandatory registration where the operator is liable to pay tax under Section 9(5) — for example, passenger transport (Ola/Uber drivers) or accommodation (Airbnb hosts)
• Composition scheme dealers cannot sell through e-commerce operators at all. Section 10(2)(d) bars composition taxpayers from making supplies through an e-commerce operator who is required to collect TCS under Section 52. Any composition dealer who begins selling on a national marketplace must switch to the regular scheme before going live

In practice, every product seller on a national marketplace must hold a GSTIN, file GSTR-1 (outward supplies) and GSTR-3B (summary + payment) monthly or quarterly (depending on QRMP scheme eligibility), and file GSTR-9 annually.

Income Tax on the Operator's Own Profits (FY 2026-27 / AY 2027-28)

Domestic Companies: Choosing the Right Rate Regime

Most venture-backed or profitable e-commerce operators opt for Section 115BAA, which offers a flat 22% in exchange for forgoing deductions under Sections 80-IC, 10AA, 32AC, and accelerated depreciation. For startups with DPIIT recognition and Section 80-IAC eligibility, a careful regime comparison is warranted before irrevocably opting into 115BAA.

Foreign E-commerce Operators: Significant Economic Presence (SEP)

Section 9(1)(i) of the Income-tax Act deems a foreign entity to have a business connection in India through Significant Economic Presence if either threshold is crossed:

• Revenue from transactions with Indian users exceeds Rs. 2 crore in the year, or
• Number of Indian users of the platform exceeds 3 lakh

A foreign platform with SEP is taxed on profits attributable to India-source transactions, computed on a functions-assets-risks basis, at the foreign company rate of 40% + applicable surcharge + 4% cess — without needing a permanent establishment. The attribution methodology is still evolving; foreign platforms should maintain contemporaneous documentation of India-attributed revenues, costs, and the transfer-pricing basis for any intercompany charges.

Equalisation Levy Phase-Out and OECD Pillar Two

What Changed with the 2% Levy

The 2% equalisation levy on non-resident e-commerce operators — introduced by Finance Act 2020 — was abolished with effect from 1 August 2024 under Finance Act 2024, as part of India's commitment under the OECD/G20 Inclusive Framework. Operators who were filing Form 1 on a six-monthly basis (by 30 June and 31 December) and paying the levy on consideration received from India no longer face this obligation for transactions on or after 1 August 2024. Outstanding liabilities for transactions prior to that date remain payable.

Pillar Two: The 15% Global Minimum Tax Framework

India adopted the GloBE (Global Anti-Base Erosion) rules through Finance Act 2025. The framework targets MNE groups with consolidated annual revenue of €750 million or more in at least two of the preceding four fiscal years.

Three key mechanisms:

• Income Inclusion Rule (IIR): The ultimate parent entity's jurisdiction must impose a top-up tax on the group's low-taxed income where any constituent entity's Effective Tax Rate (ETR) in a jurisdiction falls below 15%
• Undertaxed Payments Rule (UTPR): A backstop rule that reallocates taxing rights to other group jurisdictions when the parent does not apply IIR
• Qualified Domestic Minimum Top-up Tax (QDMTT): India can levy its own top-up tax on Indian entities to bring their ETR to 15%, retaining the revenue domestically rather than ceding it to the parent jurisdiction

For most large foreign marketplaces operating in India, the statutory Indian tax rate already exceeds 15% — but GloBE calculations require substance-based income exclusions (SBIE) for payroll and tangible assets, deferred tax adjustments, and detailed ETR modelling by jurisdiction. These are not trivial computations.

For Indian-origin e-commerce groups approaching the €750 million revenue threshold: Begin the GloBE data-collection exercise at least two financial years before the threshold is expected to be breached. The GloBE Information Return (filed as per CBDT notification and modelled on the OECD standard template) requires entity-level revenue, income, tax, employee, and asset data that most companies do not currently capture in usable form.

ONDC: Tax Obligations Across Network Participants

The Open Network for Digital Commerce (ONDC) is not a marketplace — it is a government-backed interoperability protocol that allows buyer apps, seller apps, and logistics providers to transact across a common network. This creates genuine ambiguity about which participant is the "e-commerce operator" for tax purposes.

Practical working positions as of May 2026:

• Seller apps that onboard sellers and through whose accounts payment settlement flows to sellers are treated as e-commerce operators for Section 194-O TDS purposes
• Buyer apps that display catalogues and initiate transactions but do not control fund disbursement are not operators for TDS, though they may be for GST TCS depending on contract structure
• Where a payment aggregator (a bank or NBFC) settles directly to the seller bypassing both buyer and seller apps, the payment aggregator may be pulled into the operator role for TDS deduction

The ONDC network design intentionally decouples order management from payment settlement, which means the fund-flow structure — not the commercial role — determines the tax obligation. Every ONDC participant should have a written fund-flow opinion from a qualified CA before onboarding sellers at scale. The penalty for non-deduction sits with whichever entity CBDT determines controlled the payment.

Worked Example: A Textile Seller on a National Marketplace (FY 2026-27)

Priya Textiles is a sole-proprietor registered for GST, selling printed cotton sarees on a leading marketplace. Her FY 2026-27 data:

• Gross GMV (product price + GST billed to buyer): Rs. 24,00,000
• GST rate on sarees: 5%
• Net taxable value (ex-GST): Rs. 24,00,000 ÷ 1.05 = Rs. 22,85,714

Section 194-O TDS deducted by operator (on gross amount): > 1% × Rs. 24,00,000 = Rs. 24,000

Section 52 GST TCS collected by operator (on net taxable value): > 1% × Rs. 22,85,714 = Rs. 22,857 > Split: Rs. 11,429 CGST + Rs. 11,428 SGST (intra-state supply)

Total withheld from Priya's remittances across the year: > Rs. 24,000 (income-tax TDS) + Rs. 22,857 (GST TCS) = Rs. 46,857

How Priya recovers each amount:

• The Rs. 24,000 TDS appears in her Form 26AS / AIS against PAN. She claims it in ITR-4 for AY 2027-28. If her net income tax payable for the year is Rs. 15,000, she receives a refund of Rs. 9,000 — but only if she reconciles the TDS credit against Form 26Q data and raises a discrepancy with the operator where figures don't match
• The Rs. 22,857 TCS appears in her GSTR-2B each month as the operator files GSTR-8. She claims it in Table 9 of GSTR-3B against her monthly GST cash liability. If her monthly output GST exceeds the TCS credit, it reduces what she pays in cash; if it does not, the surplus rolls forward as a credit

If Priya were selling without PAN (hypothetically): The operator would deduct at 20% under Section 206AA — Rs. 4,80,000 on the same Rs. 24,00,000 GMV. This alone illustrates why KYC completeness is both a compliance and a cash-flow imperative for marketplace seller-acquisition teams.

Common Mistakes and How to Fix Them

Mistake 1: TDS Calculated on the Net Amount After GST

What happens: The operator's settlement system strips GST before computing TDS, applying 1% to Rs. 10,000 instead of Rs. 11,800. This is under-deduction by 18% of the TDS amount.

Fix: Recalculate on the gross amount. File correction statements in TRACES for the affected quarters. Pay the shortfall plus interest at 1% per month from the date deduction was originally due. TRACES correction filings now use online correction mode — no physical visit required.

Mistake 2: Operator Files GSTR-8 Even a Few Days Late

What happens: The finance team files GSTR-8 on the 13th instead of the 10th — a 3-day slip on a single GSTIN.

Penalty: Rs. 200/day × 3 days = Rs. 600 per GSTIN. For a marketplace with 36 registrations: Rs. 21,600 for a 3-day slip. Multiply by 12 months and the annual penalty exposure from chronic late filing is over Rs. 2.5 lakh — purely from filing lag.

Fix: Automate GSTR-8 data extraction from the platform's order-management system into a GSTN-certified API-based filing tool. Treat the 8th of each month as the internal deadline, not the 10th.

Mistake 3: Seller Treats GST TCS as an Expense, Not a Credit

What happens: A first-time D2C seller sees Rs. 22,857 withheld on the settlement report and books it as a platform fee. It never appears in GSTR-3B.

Fix: The TCS is a credit, not a cost. Train your accounts team to reconcile GSTR-2B Table 9 data against the marketplace settlement statement every month. If GSTR-3B was already filed without claiming TCS, the credit can be claimed in subsequent returns up to the filing of GSTR-9, subject to reconciliation.

Mistake 4: Composition Dealer Starts Selling on a Marketplace Without Switching Schemes

What happens: A retailer on the composition scheme lists products on Flipkart and begins fulfilling orders before realising Section 10(2)(d) bars this.

Penalty: The dealer is liable to pay regular GST (not composition levy) on all marketplace supplies from the date of first supply, plus interest at 18% per annum, plus potential penalty of 10% of tax short-paid.

Fix: File GST REG-14 to migrate from composition to regular scheme before the first marketplace sale. For goods involving inter-state movement, regular GST registration is mandatory anyway.

Mistake 5: Foreign Platform Ignores SEP Attribution and Transfer Pricing

What happens: A foreign e-commerce platform charges its Indian subsidiary a management fee that absorbs most of the Indian entity's profits, producing a near-zero Indian taxable income despite substantial Indian user activity.

Risk: CBDT can recharacterise the transfer pricing arrangement, attribute additional profits to the Indian entity, and impose a penalty of 2% of the value of international transactions under Section 271G for failure to maintain documentation, plus 100–300% of the tax evaded under Section 271(1)(c).

Fix: Prepare a contemporaneous Transfer Pricing Study (Form 3CEB) benchmarking intercompany charges to arm's-length equivalents. Document the functions performed, assets used, and risks assumed by the Indian entity. Engage a registered valuer if intangibles are involved.

Key Takeaways

• Section 194-O TDS is calculated on the gross amount including GST — operators who use the net sale price as the base are under-deducting and face interest at 1% per month from the date of default
• GSTR-8 is due by the 10th of every month — late filing costs Rs. 200/day per GSTIN, and for a national marketplace with 36 registrations, even a 5-day slip creates five-figure penalty exposure before per-return caps apply
• GST registration is compulsory for all product sellers on e-commerce platforms regardless of turnover under Section 24(ix); composition-scheme dealers must switch to the regular scheme before making their first marketplace sale
• The 2% equalisation levy on non-resident operators was abolished from 1 August 2024; foreign platforms now face Pillar Two's 15% global minimum tax if the €750 million MNE group revenue threshold is met across two of the preceding four years
• ONDC participants must map their fund-flow structure before assuming tax obligations — the entity that controls payment disbursement to the seller is the e-commerce operator for Section 194-O purposes, regardless of commercial role
• Sellers must reconcile Form 26AS against operator Form 26Q data quarterly and GSTR-2B against GSTR-8 data monthly — discrepancies do not self-correct and directly impair cash flow if unfiled credits are missed in ITR or GSTR-3B
• Foreign platforms with Indian SEP above Rs. 2 crore revenue or 3 lakh users are taxable in India on attributed profits at the foreign company rate, even without a physical establishment — transfer pricing documentation and Form 3CEB are non-negotiable