Taxation of E-commerce Companies

E-commerce companies in India are taxed under multiple statutes. Operators must deduct 1% TDS under Section 194-O on the gross sale value facilitated through their platform, collect 1% GST TCS under Section 52, and file GSTR-8 monthly. Foreign marketplaces with significant economic presence face 40% tax on attributable profits and are now subject to OECD Pillar Two minimum 15% tax. Every seller on a marketplace must obtain GST registration regardless of turnover thresholds under Section 24 of the CGST Act.

Mayank Wadhera

Published: 14 Jun 2023

Updated: 16 May 2026

3 min read

E-commerce in India has crossed ₹10 lakh crore in GMV, and Union Budget 2026 has further refined the tax architecture for marketplaces, D2C brands, ONDC sellers, and quick-commerce operators. The convergence of Section 194-O TDS, Section 165A equalisation levy provisions, GST TCS under Section 52, and the new digital-asset framework has made e-commerce taxation one of the most regulated verticals in 2026.

Income Tax Under Section 194-O

Every e-commerce operator (Amazon, Flipkart, Meesho, Myntra, Zomato, Swiggy, Nykaa, ONDC nodes) must deduct TDS at 1% on the gross amount of sale of goods or services facilitated through its digital platform for a resident seller. The deduction is on the gross amount, including GST. Individual sellers with annual GMV up to ₹5 lakh and a valid PAN are exempt. Form 26Q is filed quarterly with TRACES.

GST TCS Under Section 52

E-commerce operators must collect TCS at 1% (0.5% CGST + 0.5% SGST, or 1% IGST) on net taxable supplies made through their platform by registered sellers. The collected amount is deposited monthly via GSTR-8 by the 10th of the following month and reflects in the seller's GSTR-2A/2B as input credit. Sellers reconcile this against their books before filing GSTR-3B.

Equalisation Levy Phase-Out and OECD Pillar Two

The 2% equalisation levy on non-resident e-commerce operators that was operative until early 2024 has been formally subsumed by India's adoption of the OECD Pillar Two framework. Foreign marketplaces with consolidated revenue above the prevailing global threshold notified by CBDT now face a 15% minimum effective tax on Indian-source profits, computed through the income inclusion rule (IIR) and undertaxed payments rule (UTPR).

Direct Tax Implications for the Operator

E-commerce operators themselves are taxed at the corporate rate applicable to their structure:

22% under Section 115BAA for domestic companies opting out of incentives, plus surcharge and cess.
15% under Section 115BAB for new manufacturing companies setting up by the notified sunset date.
25% for domestic companies with turnover up to the prevailing limit notified by CBDT.
30% for other domestic companies under the default regime.

Foreign e-commerce companies with a Significant Economic Presence (SEP) under Section 9(1)(i) are deemed to have a business connection in India and are taxed at 40% plus surcharge and cess on attributable profits.

GST Registration and Compliance for Sellers

Section 24 of the CGST Act mandates GST registration for every supplier selling through an e-commerce operator, irrespective of the ₹40 lakh goods / ₹20 lakh services threshold. The only relief is for service-only sellers below the threshold notified for composition or for the special category states (₹10 lakh threshold). Sellers must file GSTR-1, GSTR-3B, and reconcile GSTR-8 monthly.

Compliance Checklist for Marketplaces

Marketplaces must deduct Section 194-O TDS, collect Section 52 GST TCS, file GSTR-8, file Form 26Q, issue Form 16A to sellers, maintain seller KYC under the Consumer Protection (E-commerce) Rules 2020, comply with DGFT export rules for cross-border sales, and prepare for OECD Pillar Two filings where the group threshold is breached.

Conclusion

Taxation of e-commerce companies in 2026 is a multi-statute exercise spanning the Income-tax Act, CGST Act, OECD Pillar Two, and the Consumer Protection rules. Build a compliance calendar covering 194-O TDS, GSTR-8, and Pillar Two filings; reconcile monthly between operator and seller books; and treat compliance as a competitive moat. Clean tax hygiene is now table-stakes for marketplace credibility.

Frequently Asked Questions

What is the TDS rate under Section 194-O?

E-commerce operators must deduct TDS at 1% on the gross amount of sale of goods or services facilitated through their platform for a resident seller. The deduction applies on the entire gross amount including GST. Individual or HUF sellers with annual GMV up to ₹5 lakh and a valid PAN are exempt.

Do small sellers on Amazon need GST registration?

Yes. Section 24 of the CGST Act mandates GST registration for every supplier selling through an e-commerce operator, irrespective of the ₹40 lakh goods or ₹20 lakh services threshold. The only exception is for service providers below the threshold who supply through ECOs not liable for TCS in limited cases.

Is the equalisation levy still applicable in 2026?

The 2% equalisation levy on non-resident e-commerce operators has been subsumed by India's adoption of the OECD Pillar Two framework. Large foreign marketplaces above the global revenue threshold now face a 15% minimum effective tax through the IIR and UTPR rules instead of the legacy equalisation levy.

How is GST TCS reconciled by sellers?

Sellers see the TCS collected by the e-commerce operator in GSTR-8 reflected automatically in their GSTR-2A/2B. They can claim this as input credit while filing GSTR-3B. Monthly reconciliation between the seller's sales register and operator's TCS report is critical to avoid input credit mismatches.