Section 194-O: TDS on Payments by E-Commerce Operators to Participants
Section 194-O of the Income-tax Act, 1961 required e-commerce operators to deduct tax at source (TDS) on sales or services facilitated through their platforms. From 1 April 2026, the corresponding rules are contained in section 393 of the Income-tax Act, 2025.
Who must deduct TDS and when?
An e-commerce operator that facilitates the sale of goods or provision of services by a resident e-commerce participant through a digital or electronic platform is responsible for deduction. Under section 194-O(1), the deduction arose at the earlier of credit to the participant's account or payment to the participant, by any mode. The corresponding 2025 Act rules retain this approach.
| Requirement | Position |
|---|---|
| Deductor | E-commerce operator |
| Payee | Resident e-commerce participant |
| Covered amount | Gross value of platform-facilitated sales, services or both, including covered direct payments |
| Normal TDS rate | 0.1% (from 1 October 2024) |
| General threshold | Nil, subject to the individual/HUF exception |
| Individual/HUF exception | No TDS if annual gross sales/services do not exceed Rs. 5 lakh and PAN or Aadhaar has been furnished |
Section 194-O of the Income-tax Act, 1961 explained
The following explains the substantive provisions of section 194-O for transactions governed by the 1961 Act, including historical compliance and assessments.
Subsection (1): Deduction on gross sales or services
The operator deducted tax on the gross amount of sales or services facilitated for the participant, irrespective of whether the platform physically handled the money. The Explanation to subsection (1) treated direct payments from customers to participants as amounts credited or paid by the operator for TDS purposes.
Subsection (2): Rs. 5 lakh relief for individuals and HUFs
No TDS was required for an e-commerce participant who was an individual or Hindu undivided family (HUF) where the gross amount of sales or services during the previous year did not exceed Rs. 5 lakh and the participant furnished PAN or Aadhaar to the operator. The exception did not extend generally to companies, firms or other participants.
Subsection (3): Priority over other TDS provisions
Where tax was deducted under subsection (1), or no deduction was required because subsection (2) applied, the same transaction was not subjected to another TDS provision of the Chapter. This protection did not cover amounts received or receivable by an operator for hosting advertisements or for unrelated services outside the relevant platform-facilitated sales or services.
Subsections (4) and (5): CBDT guidelines
To remove implementation difficulties, the Central Board of Direct Taxes (CBDT), with Central Government approval, could issue guidelines. Such guidelines were required to be laid before both Houses of Parliament and were binding on income-tax authorities and e-commerce operators.
Subsection (6): Person responsible for payment
The e-commerce operator was deemed to be the person responsible for paying the e-commerce participant, including for the deduction obligation.
Statutory definitions
The Explanation to section 194-O defined the following terms:
- Electronic commerce: Supply of goods or services, including digital products, over a digital or electronic network.
- E-commerce operator: A person owning, operating or managing a digital or electronic facility or platform for electronic commerce.
- E-commerce participant: A person resident in India selling goods or providing services, including digital products, through such a facility or platform.
- Services: Includes fees for technical services and professional services as defined in the Explanation to section 194J.
Corresponding law from 1 April 2026: Income-tax Act, 2025
Section 393(1), Table, serial number 8(v) of the Income-tax Act, 2025 specifies TDS at 0.1% of the gross amount for covered e-commerce transactions. The table states a nil general threshold. The special individual/HUF exception is addressed by section 393(4), Table, serial number 11.
Note 3 relating to serial number 8(v) preserves key rules concerning priority over other withholding provisions, direct payments to participants, the operator's responsibility for deduction and the separate treatment of advertising or other unrelated services. The provisions must be read together with the definitions and applicable general TDS rules in the 2025 Act.
The Income Tax Department's transition guidance confirms that the earlier of credit or payment determines the applicable Act: if that event occurred by 31 March 2026, the 1961 Act applies; if it occurs on or after 1 April 2026, the 2025 Act applies. For current TDS reporting, use the relevant section 393 table item rather than the repealed section number.
Illustrative TDS calculations
Example 1: A resident company sells goods worth Rs. 8,00,000 through a platform. Assuming the transaction is fully covered and the normal rate applies, TDS is Rs. 800 (0.1% of Rs. 8,00,000).
Example 2: A resident individual seller provides PAN and has total platform-facilitated sales of Rs. 4,50,000 during the relevant year. Subject to the statutory conditions, the individual/HUF exception applies and no TDS is required.
Example 3: A customer pays a resident seller directly for an order facilitated through the operator. The direct payment is not excluded merely because the operator does not collect the consideration; it is treated as a payment for the applicable e-commerce TDS rules.
These examples assume the ordinary statutory rate and do not address special cases such as failure to furnish PAN, which can trigger higher-rate withholding under applicable law.