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CBDT CircularHigh impact for ecommerce sellers

TDS by e-commerce operators (Section 194-O): gross amount, GST, returns and discounts

Reviewed by CA Apurav GargSummary reviewed

Document
Circular No. 17/2020 and Circular No. 20/2023
Issued
28 Dec 2023
Effective
Section 194-O from 2020-10-01; Section 393(1) Sl. No. 8(v) from 2026-04-01
Issued by
Central Board of Direct Taxes (CBDT)
Official PDF(opens in a new tab)

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On this page

What it means for ecommerce sellers

Marketplaces deduct TDS on the gross amount of each seller's sales; the rate is 0.1%, and under the Income-tax Act 2025 the rule sits in Section 393(1) Table Sl. No. 8(v). CBDT Circular 20/2023 (which builds on Circular 17/2020) clarifies the main points. Where several ECOs are involved (for example on ONDC), the seller-side ECO that pays the seller deducts. Shipping, packing and convenience fees charged to the buyer form part of the gross amount. GST shown separately is excluded when tax is deducted at credit. On a refunded return, the TDS can be adjusted against the next sale to the same seller in the same year. Seller discounts reduce the gross amount; marketplace-funded discounts do not. This explains why the TDS credit in Form 26AS rarely matches your net payout.

Who it affects

  • Sellers on marketplaces and ONDC
  • E-commerce operators
  • Brands reconciling Form 26AS / AIS with marketplace settlements

Before and after

  • Rate of TDS by e-commerce operators

    Before
    1% (as originally enacted, cited in Circular 20/2023)
    After
    0.1% (as in Section 393(1) Table Sl. No. 8(v))

  • Shipping, packing and convenience fees charged to buyer

    Before
    Unclear
    After
    Part of the gross amount (Circular 20/2023, para 3.2)

  • GST shown separately

    Before
    Unclear
    After
    Excluded when TDS is deducted at the time of credit (para 3.3)

  • Discount funded by the marketplace

    Before
    Unclear
    After
    Does not reduce the gross amount; seller-funded discount does (para 3.5)

What to do

  1. Reconcile the 194-O TDS in Form 26AS / AIS with the gross sales in each marketplace's settlement report, not with the net payout.
  2. Check that returns refunded in the same year have their TDS adjusted against later sales.
  3. From Tax Year 2026-27, look for the same TDS under Section 393(1) Sl. No. 8(v) in Form 26AS / the annual statement.

Provisions referred to: Section 194-O Income-tax Act, 1961; Section 194-O(4); Section 393(1) Table Sl. No. 8(v) Income-tax Act, 2025; Section 400(2) Income-tax Act, 2025

Related tools and services

Official text

As issued by Central Board of Direct Taxes (CBDT). Where the text starts with “Extract”, only the parts that concern ecommerce sellers are reproduced; the official PDF (opens in a new tab) is the authoritative version.

Type a word, number or section to highlight it below.

Extract: the parts of the official text that this update relates to. Omitted passages are marked […]. The complete document is at the official link above. Circular No. 20 of 2023 Sub: Guidelines under sub-section (4) of section 194-O of the Income-tax Act 1961 ("the Act") - reg; Finance Act, 2020 had inserted section 194-O in the Act mandating that an e-commerce operator (ECO) shall deduct income-tax at the rate of one per cent of the gross amount of sale of goods or provision of service or both, facilitated through its digital or electronic facility or platform. However, exemption from the said deduction has been provided in case of certain individuals or Hindu undivided family fulfilling certain conditions. This deduction is required to be made at the time of credit of amount of such sale or service or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant, whichever is earlier. Any payment made by a buyer to a seller, both e-commerce participants, in a transaction facilitated by the e-commerce operator, shall be deemed to be the payment by the e-commerce operator to the seller and shall be included in the gross amount of sale of goods or provision of services or both for the purposes of tax deduction at source (herein after referred to as the 'deemed payment'). 2. Sub-section (4) of section 194-O of the Act empowers the Board (with the approval of the Central Government), to issue guidelines for the purpose of removing difficulties. Earlier, guidelines on section 194-O of the Act were issued vide Circular no. 17 of 2020 dated 29th September, 2020 and Circular no. 20 of 2021 dated 25th November 2021. Representations have been received by the Board for further clarifications. In exercise of the power contained under sub-section (4) of section 194-O of the Act, the Board, with the approval of the Central Government, hereby issues the following guidelines. 3. Guidelines 3.1 Who should deduct tax at source where there are multiple e-commerce operators (ECO) involved in a transaction? […] Situation 1: Where multiple ECOs are involved in a single transaction of sale of goods or provision of services through ECO platform or network and where the seller-side ECO is not the actual seller of the goods or services […] In this situation, the compliance under section 194-O of the Act is to be done by the seller-side ECO who finally makes the payment or the deemed payment to the seller for goods sold or services provided. 3.2 E-commerce operators may be levying convenience fees or charging commission for each transaction and seller might levy logistics & delivery fees for the transaction. Payments may also be made to the platform or network (e.g. ONDC) provider for facilitating the transaction. Would these form part of “gross amount” for the purposes of TDS under section 194-O of the Act? […] Example 1: A Buyer purchases goods worth Rs 100 from Seller and opts for home delivery. The Seller charges the Buyer an additional Rs 5 as packing fees, Rs 10 as shipping fees, and Rs 3 as a convenience charge (to recoup the fees charged by the seller-side ECO, which includes Rs 1 charged by the Buyer-side ECO and Rs 2 charged by the Seller-side ECO itself). So the seller will issue an invoice for Rs 118 (i.e. Rs 100 + 5 + 10 + 2 + 1) to the buyer. The shipping fees, packaging fees and convenience fees are separately charged to the buyer to provide services in relation to the main supply. In such a case, TDS is to be deducted under sub-section (1) of section 194-O of the Act on Rs. 118 since this is the gross amount of sales. […] Payments may also be made to the platform or network (e.g. ONDC) provider for facilitating the transaction. These would form part of “gross amount” for the purposes of TDS under section 194-O of the Act if they are included in the payment for the transaction. If these payments are being paid on a lump-sum basis and are not linked to a specific transaction, then these need not be included in the “gross amount”. 3.3 How will GST, various state levies and taxes other than GST such as VAT/Sales tax/ Excise duty / CST be treated when calculating gross amount of sales of goods or provision of services as per the provisions of section 194-O of the Act? […] Accordingly it is clarified that under section 194-O of the Act, when tax is deducted at the time of credit of amount in the account of seller and the component of GST/various state levies and taxes comprised in the amount payable to the seller is indicated separately, tax shall be deducted under section 194-O of the Act on the amount credited without including such GST/various state levies and taxes. However, if the tax is deducted on payment basis because the payment is earlier than the credit, the tax would be deducted on the whole amount as it is not possible to identify that payment with GST/various state levies and taxes component of the amount to be invoiced in future. 3.4 How will adjustment for purchase-returns take place? […] Similarly, it is noted that the tax is required to be deducted under section 194-O of the Act at the time of payment or credit, whichever is earlier. Thus, before purchase-return happens, the tax must have already been deducted under section 194-O of the Act on that purchase. If that is the case and against this purchase-return the money is refunded then this tax deducted, if any, may be adjusted against the next transaction by the deductor with the same deductee in the same financial year. Further, the tax deducted and deposited will be allowed as credit to the seller. Further, no adjustment is required if the purchase-return is replaced by the goods, since in that case the transaction on which tax was deducted under section 194-O of the Act has been completed with goods replaced. 3.5 How will discounts given by seller as an e-commerce participant or by any of the multiple e-commerce operators be treated while calculating “gross amount”? a) Seller Discount: In the situation where the discount is given by the seller itself, the seller would reduce the price of the products sold or services provided. As an example, if the label-price of a product is Rs 100, and the seller offers a discount of Rs 10, Rs 90 will be receivable from the buyer. In this case, the seller will invoice the buyer for Rs 90, and hence the TDS will be calculated on Rs 90. b) Buyer ECO or Seller ECO Discount: […] As an example of a discount given by the buyer ECO, if the price quoted by the seller is Rs 100, and the buyer ECO gives a discount of Rs 10, Rs 90 (i.e. 100 - 10) will be collected from the buyer and remitted to the seller, and the buyer ECO will pay the remaining Rs 10 to the seller via the seller ECO. The invoice on the buyer will be raised for Rs 100 and tax will therefore be deducted by the seller-side ECO on Rs 100, which is the gross amount of sales. Khushboo Lather Under Secretary to Government of India

Questions sellers ask

Who deducts 194-O TDS when two e-commerce operators are involved?

Circular 20/2023 says the seller-side ECO that finally makes the payment, or deemed payment, to the seller deducts the tax and issues Form 16A.

Is GST included in the gross amount for 194-O?

Not when TDS is deducted at the time of credit and the GST is shown separately. If tax is deducted at payment because payment comes first, it is deducted on the whole amount.

How are returns handled under 194-O?

If the money is refunded, the TDS already deducted may be adjusted against the next transaction with the same seller in the same financial year. No adjustment is needed if the goods are replaced.

What is the 194-O TDS rate now?

0.1% of the gross amount. Under the Income-tax Act 2025 it is in Section 393(1) Table Sl. No. 8(v), with no threshold except the exemption for certain individuals and HUFs.

Want help working out what this means for your business?

We handle GST and TDS compliance, returns and notice replies for D2C and marketplace sellers, and can walk you through how a change applies to your books.

Contact usWhatsApp us

General information only, not professional advice. The summary is ecomca’s reading of the document; the official PDF is the authoritative version, and later amendments may change it. Check the official source before you act.