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Section 194-O: the TDS the marketplace deducts, who is exempt, and why old guides say 1%
Every marketplace deducts income-tax TDS from a seller's gross sales under section 194-O. The rate was 1% from October 2020 and is 0.1% since 1 October 2024; individuals and HUFs under ₹5 lakh a year with PAN are exempt; the credit comes back through Form 26AS, not through GST.
What the section does
Section 194-O of the Income-tax Act 1961, carried into the Income-tax Act 2025 as section 393(1) (Table, Sl. No. 8(v)) from 1 April 2026, makes the e-commerce operator (Amazon, Flipkart, Meesho, any platform that facilitates the sale) deduct tax at source on the gross amount of sales it facilitates for a seller, and deposit it against the seller's PAN. It has applied since 1 October 2020. The seller sees it as a line in every settlement.
| Rule | Value | Since |
|---|---|---|
| Rate | 0.1% of gross sales | 1 October 2024 (Finance (No. 2) Act 2024) |
| Rate before that | 1% | 1 October 2020 to 30 September 2024 |
| Without PAN or Aadhaar | 5% (section 206AA) | Throughout |
| Exempt | Individuals and HUFs whose gross sales through the operator are ₹5 lakh or less in the financial year, if PAN or Aadhaar is furnished | Throughout |
| Companies, firms, LLPs | No threshold; deducted from the first rupee | Throughout |
| Where the credit appears | Form 26AS and AIS, against your PAN; set off against income-tax liability or refunded | Throughout |
Why the guides disagree
Any seller guide written before October 2024 says 1%, and many were never updated. Both numbers were right in their year. On a settlement dated after 1 October 2024, a 1% line is TCS under GST, not TDS; the two sit next to each other and are often confused because both are withheld by the marketplace.
What to do with it
- Book it as a receivable against the marketplace, not an expense. It is your tax, paid in advance.
- Check the total per financial year against Form 26AS before filing the income-tax return. A marketplace that deposited less than it deducted is a dispute with the marketplace, visible only if you check.
- If you are an individual or HUF under the threshold, confirm the marketplace has your PAN; without it the rate is 5%, not 0%.
- Keep it apart from TCS. TCS goes through the GST portal (the TDS and TCS credit received statement); 194-O TDS goes through the income-tax return. Mixing them loses one of the two credits.
ezmarketplaces records 194-O TDS per channel and per period as recoverable credit and reports the financial-year total for the return. It does not file anything; your accountant does, from the figure and the per-settlement working behind it.