If you are selling products or services through e-commerce marketplaces like Amazon, Flipkart, Myntra, UrbanClap, or Zomato, you are subject to TDS under Section 194-O of the Income Tax Act.
Budget 2025 has updated certain rates and clarified the compliance rules for FY 2025–26.
This blog explains the latest TDS rates, exemption limits, and compliance checklist for marketplace sellers.
Legal Reference
- Section 194-O, Income Tax Act, 1961
- Introduced by Finance Act 2020
- Updated in Finance Bill 2025 (effective 1st April 2025)
What is Section 194-O?
It mandates that marketplaces must deduct TDS on gross sales proceeds (including GST, shipping charges, etc.) before making payments to sellers.
TDS is deducted even if the payment is made directly by the buyer to the seller.
The marketplace is treated as the deemed payer under law.
Updated TDS Rates for FY 2025–26
| Seller Type | TDS Rate | Exemption Limit |
|---|---|---|
| Resident Individual or HUF | 1% | No TDS if gross receipts < ₹5 lakh AND PAN/Aadhaar provided |
| Resident Company, LLP, Partnership | 1% | No threshold |
| Non-Filer under Section 206AB (2 years) | 5% | No threshold |
Note: If PAN or Aadhaar is not furnished, TDS rate is 5% under Section 206AA.
When TDS is NOT Required under 194-O
- Aggregate sales through the platform during the year are below ₹5 lakh (for individuals and HUFs only)
- PAN or Aadhaar has been furnished and verified
- Payment relates to export of services outside India in certain cases (subject to CBDT guidelines)
Practical Example
Ms. Riya, an individual seller on Amazon:
- Sales turnover for FY 2025–26 = ₹4.5 lakh
- PAN is updated and verified with Amazon
No TDS will be deducted.
If she crosses ₹5 lakh sales, Amazon will start deducting 1% TDS on the full amount (not just the excess).
Key Compliance Tips for Sellers
- Update PAN/Aadhaar details with the marketplace immediately.
- Track your gross sales (inclusive of GST and delivery charges) to monitor ₹5 lakh limit.
- Reconcile Form 26AS monthly to match TDS deducted with your marketplace payouts.
- File Income Tax Return (ITR) every year — otherwise, Section 206AB may trigger higher TDS @5%.
- Download TDS certificates (Form 16A) issued by the marketplace every quarter.
Consequences of Non-Compliance
- Incorrect PAN = Higher TDS deduction @5%
- Non-filing of ITR = TDS @5% for two consecutive assessment years
- Delay in reconciliation may lead to loss of input tax credit (ITC) matching under GST
- Unmatched TDS amounts can trigger tax notices
Conclusion
Marketplace sellers must stay alert to their sales volume, TDS deduction rates, and ITR filing status. With 1% TDS applicable almost universally and 5% penalties lurking for non-compliance, it is critical for every Amazon, Flipkart, Zomato, and service marketplace seller to manage their compliance actively for FY 2025–26.
Call to Action and Disclaimer
Need help tracking your TDS or filing your returns correctly as a marketplace seller?
Schedule a meeting with our Chartered Accountant, Anshul Goyal, by visiting:
Disclaimer: I am Anshul Goyal, a Chartered Accountant licensed with ICAI, India. This blog is for informational purposes only and does not constitute legal advice.
Frequently Asked Questions
1. If my sales are below ₹5 lakh but I have not updated PAN, will TDS apply?
Yes. Without PAN/Aadhaar, 5% TDS applies even below ₹5 lakh.
2. Can I get a refund of excess TDS deducted?
Yes. You can claim refund while filing your Income Tax Return.
3. Does TDS apply on service marketplaces like UrbanClap?
Yes. Section 194-O covers all digital e-commerce operators, product or service based.
4. If buyer pays directly to seller, who deducts TDS?
Marketplace operator is still deemed to deduct TDS on the entire transaction.
5. How to check TDS deducted by marketplaces?
Check Form 26AS or AIS report on the Income Tax portal.