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For FY 2026-27, an e-commerce participant active across the FY 2025-26 / 2026-27 cutover receives TDS credits at 0.1% on two different forms under two different statutes for the same economic activity. Q4 FY 2025-26 sale settlements deducted under Section 194O credit in Form 26AS in May 2026. Q1 FY 2026-27 settlements deducted under §393(1) Sl. 8(v) code 1035 credit in Form 168 in August 2026. Without per-batch deduction-date tagging, the seller cannot tell which form a particular sale belongs on, and ITR filing under-claims or double-claims TDS.
Reconciliation classifies each marketplace settlement batch by deduction date (the earlier of credit to participant or actual payment). Settlements with deduction date on or before March 31, 2026 are routed to the 194O / Form 26AS bucket. Settlements with deduction date on or after April 1, 2026 are routed to the 1035 / Form 168 bucket. Within each bucket the seller's sales register is reconciled against the respective form on a composite key of marketplace TAN, deduction date, and deductee PAN, with GST gross-up applied to taxable sales before the 0.1% rate is validated.
Marketplace master annotated with TAN per platform. Cross-era ruleset configured with the March 31, 2026 cutover date, mapping legacy Section 194O to new payment code 1035, with deduction-date routing rules that flag settlement batches spanning the boundary. Form 26AS and Form 168 ingestion separated into two collections with linked aggregate views for ITR preparation.
Two reconciled buckets per seller: a closed FY 2025-26 bucket showing every Section 194O deduction tied to a Form 26AS line, and an open FY 2026-27 bucket showing every code 1035 deduction tied to a Form 168 line. ITR schedule populated by summing each bucket; cross-form audit trail showing the deduction date for every batch.
Quick reference: 194O → code 1035 cross-era mapping
| Attribute | FY 2025-26 deductions | FY 2026-27 deductions |
|---|---|---|
| Statute | Income-tax Act 1961 | Income-tax Act 2025 |
| Section | 194O | §393(1) Sl. 8(v) |
| Payment code on challan | 194O reference | 1035 |
| Rate | 0.1% | 0.1% |
| Base | Gross sale value, GST-inclusive | Gross sale value, GST-inclusive |
| Individual / HUF exemption | Up to ₹5,00,000 with PAN/Aadhaar | Up to ₹5,00,000 with PAN/Aadhaar |
| Non-PAN rate | 5% | 5% |
| Form on which credit surfaces | Form 26AS | Form 168 |
| Quarterly return | Form 26Q (1961 schema) | Form 26Q (2025 schema) |
| Deductee certificate | Form 16A | Form 131 |
| Cutover trigger | Sale settled on or before 31 Mar 2026 | Sale settled on or after 1 Apr 2026 |
The cross-era window the controller has to plan for
A finance controller managing marketplace seller compliance for FY 2026-27 is staring at two TDS books on the same desk. The 0.1% rate has not changed — it has been at 0.1% since October 1, 2024 when the Finance Act 2024 dropped Section 194O from its original 1% level. What has changed is everything around the rate. The 1961 Act gives way to the Income-tax Act 2025 from April 1, 2026. Section 194O becomes §393(1) Sl. 8(v). Payment code 1035 appears on the challan. Form 26AS is displaced by Form 168 for fresh deductions. The annual Form 16A becomes Form 131.
For about 12 months — from April 2026 to March 2027 — both flows will surface for the same seller in the same calendar period. Q4 FY 2025-26 quarterly returns (filed in May 2026) carry the legacy Section 194O reference; those credits land in Form 26AS. Q1 FY 2026-27 returns (filed in July-August 2026) carry code 1035; those credits land in Form 168. By the time a seller is preparing the FY 2026-27 ITR (due in October 2027), the books must reconcile two parallel TDS streams, both at 0.1% on GST-inclusive gross, and both for the same set of marketplaces.
This is not a rounding-error problem. For a mid-sized D2C brand doing ₹2 crore a year across Amazon, Flipkart, and Meesho, the TDS at 0.1% is ₹2 lakh — split across the cutover quarter, that is ₹50,000 sitting on Form 26AS and ₹1.5 lakh sitting on Form 168, with the seller’s accounting team needing to know which ITR schedule each line belongs in. The mechanics of the split are governed entirely by deduction date — which is the earlier of credit to participant or actual payment — and not by the sale date. Settlement batches that span the boundary are the hardest cases.
What exactly changes at the statutory cutover?
The change is structural, not substantive. The Income-tax Act 2025 enrolled the existing rate table from the 1961 Act into a renumbered codified structure. Section 194O, which has carried e-commerce participant payouts since October 1, 2020, is mapped into §393(1) Sl. 8(v) under the 2025 Act. The four operational changes the controller will see:
- Statute reference on the challan — ITNS 281 carries payment code 1035 instead of the legacy Section 194O reference. Banks accepting TDS challans from April 1, 2026 onwards key off 1035 in the payment-code field.
- Quarterly return schema — Form 26Q under the 2025 Act schema has slightly different columns and validation rules; the substantive deduction information (TAN, PAN, gross, tax) is the same, but the schema version differs.
- Form on which the deductee sees the credit — Form 168 replaces Form 26AS as the statement of TDS credits for the deductee, for all deductions from April 1, 2026 onwards. Pre-April-2026 deductions continue to surface in Form 26AS.
- Annual certificate — Form 131 replaces Form 16A as the deductor-issued certificate for non-salary TDS, for FY 2026-27 deductions and later.
The substantive rules — rate, base, threshold, who is the deductor, when the deduction triggers — are unchanged. The 0.1% rate, the GST-inclusive base, the ₹5,00,000 individual / HUF exemption with PAN, and the 5% non-PAN rate all carry over.
Why does deduction date — not sale date — control the regime?
The Income-tax Act 2025, like its predecessor, fixes the deduction trigger at the earlier of two events: credit to the e-commerce participant’s account, or actual payment to the participant. The sale date — the moment the consumer placed the order — is not the trigger. This matters because marketplace settlement batches typically lag the sale by 7 to 14 days, and settlement batches routinely span FY boundaries.
A clothing brand that sells a ₹2,500 t-shirt on Amazon on March 30, 2026 will see Amazon credit the brand’s payout account on April 5, 2026 (after the return window closes and the daily settlement runs). The deduction date is April 5, 2026 — the date Amazon credits the participant. The regime is the 2025 Act. The TDS appears under code 1035 in Form 168, not under Section 194O in Form 26AS, even though the sale happened in FY 2025-26.
Conversely, a sale on March 25, 2026 settled and credited on March 28 falls under Section 194O — the deduction date is in FY 2025-26, so the credit lands in Form 26AS. The seller’s sales register and Amazon’s settlement report can both be tied back, but the controller cannot wait for the ITR cycle to figure out which regime applied. The discipline is to capture the deduction date for every settlement batch at ingestion and route accordingly.
What does Q4 FY 25-26 to Q1 FY 26-27 look like for a marketplace seller?
Walk through a calendar:
- April 2026: Q4 FY 2025-26 closes on March 31. Settlement batches credited on or before March 31 are under Section 194O; batches credited from April 1 onwards are under code 1035. The marketplace’s TDS deposit for both regimes happens by April 7 (for March 31 batches) and through April (for April batches).
- May 2026: Marketplaces file Q4 FY 2025-26 Form 26Q by May 31 under the 1961 Act schema. Form 26AS for the seller updates within 2-3 weeks of filing, showing all Section 194O credits for FY 2025-26.
- July-August 2026: Marketplaces file Q1 FY 2026-27 Form 26Q under the 2025 Act schema by July 31. Form 168 for the seller updates in August, showing code 1035 credits for Q1.
- October 2026 onwards: Form 168 continues to update quarterly with new code 1035 credits.
- By October 2027: Seller files FY 2026-27 ITR. Total TDS claimable is the sum of FY 2025-26 closing-balance unutilised credit from Form 26AS plus full-year Form 168 code 1035 credits.
For the seller’s accounts team, the calendar produces a 12-month overlap where any FY 2026-27 month carries simultaneous lines from two statutes — closing-out 194O reconciliation for FY 2025-26 and opening-up 1035 reconciliation for FY 2026-27.
How does this play out for a D2C clothing brand on Amazon — worked example
Consider Threadcraft, a D2C clothing brand with the following profile across the cutover:
- Q4 FY 2025-26 (Jan-Mar 2026) Amazon sales: ₹40,00,000 GST-inclusive gross transaction value.
- Q1 FY 2026-27 (Apr-Jun 2026) Amazon sales: ₹50,00,000 GST-inclusive gross transaction value.
Q4 settlements: Amazon deducts TDS at 0.1% across the daily settlement batches. The total Q4 deduction is ₹40,00,000 × 0.1% = ₹4,000. The deductor TAN is Amazon’s; the deductee PAN is Threadcraft’s. Challan reference: Section 194O. Filing: Form 26Q for Q4 FY 2025-26 in May 2026. Threadcraft’s Form 26AS updates by mid-May 2026 with one or more Section 194O lines under Amazon’s TAN summing to ₹4,000.
Q1 settlements: Amazon deducts TDS at 0.1% on the new payment code. The total Q1 deduction is ₹50,00,000 × 0.1% = ₹5,000. Challan reference: payment code 1035. Filing: Form 26Q (2025 Act schema) for Q1 FY 2026-27 in July-August 2026. Threadcraft’s Form 168 updates by mid-August 2026 with code 1035 lines under Amazon’s TAN summing to ₹5,000.
At ITR preparation in October 2027, Threadcraft’s CA pulls Form 26AS for AY 2026-27 (already filed) and Form 168 for AY 2027-28. The Form 168 schedule of the ITR carries ₹5,000 for Q1 plus the subsequent three quarters of FY 2026-27. The Form 26AS schedule is closed — no FY 2026-27 deductions in Form 26AS for code 1035 (those did not exist), and FY 2025-26 deductions were claimed against AY 2026-27.
The confusion enters when Threadcraft’s accountant assumes the FY 2026-27 books also need to absorb the ₹4,000 because it relates to merchandise originally sold during the Q4 FY 2025-26 selling season but credited late. The deduction-date rule resolves it: any batch credited on or before March 31, 2026 is FY 2025-26 income tax, lands in Form 26AS, and was claimed in AY 2026-27. Any batch credited on April 1, 2026 or later — even if the underlying sale was in March — is FY 2026-27, lands in Form 168, and is claimed in AY 2027-28. Without pre-tagging, the accountant either double-claims (taking credit in both years) or under-claims (missing one bucket).
Audit your effective MDR before the cross-era TDS reconciliation
Marketplace payouts net of MDR, GST on MDR, and 0.1% TDS look like one number on the bank statement. Use the MDR Effective Rate Calculator to split the layers so the 0.1% TDS line that ties to Form 168 (or Form 26AS for legacy deductions) is isolated cleanly before ITR.
Open the tool →Detection and reconciliation discipline for the 12-month overlap
Five controls separate clean cross-era reconciliation from the messy version:
1. Tag every settlement batch with the deduction date at ingestion. The marketplace settlement report carries the date the participant is credited or paid — this is the deduction date. Capture it on every batch row, in a dedicated column. Do not infer from the sale date.
2. Route by deduction date into one of two buckets. Settlements with deduction date on or before March 31, 2026 go to the 194O / Form 26AS bucket. Settlements with deduction date on or after April 1, 2026 go to the 1035 / Form 168 bucket. There is no third bucket; there are no exceptions.
3. Reconcile each bucket against the corresponding form on a composite key. Match marketplace TAN, deduction date, and deductee PAN against Form 26AS (for the 194O bucket) and Form 168 (for the 1035 bucket). Form 168 is queried via the new TIN portal under the 2025 Act schema.
4. Apply the GST gross-up correctly. The 0.1% rate is on gross transaction value inclusive of GST. The seller’s sales register typically holds taxable (pre-GST) sales. Gross up by the applicable GST rate per category before validating the 0.1% deduction. A mismatch on GST gross-up is the single most common reason a Form 26AS or Form 168 line fails to tie to the seller’s books.
5. Carry the cross-era split into the ITR schedule. When the FY 2026-27 ITR is filed, the Form 168 schedule captures all code 1035 credits. The Form 26AS schedule is closed for FY 2026-27 (no fresh 26AS entries for 1035). The seller’s accounting team should produce a cross-form audit pack showing total deductions, mapped to each schedule.
The cross-era TDS reconciliation framework covers the dual-form matching pattern across all payment codes, not just 1035. For the deeper mechanics of code 1035 specifically — including multi-marketplace, returns-lag, and commission-overlap patterns — see the TDS payment code 1035 e-commerce operator payouts reference. The TDS Section 194O e-commerce reconciliation article remains the canonical reference for closing-out the FY 2025-26 books.
Where this fits in the merchant-fees stack
The 0.1% TDS line is one of three deductions the marketplace nets out before paying the seller: marketplace commission (typically 8% to 25% by category), gateway / payment-instrument MDR (where the marketplace is the merchant of record on the consumer transaction), and the 0.1% TDS. Reconciling marketplace payouts requires all three to be split and tied to their respective documentation — commission to the commission invoice from the marketplace, MDR to the marketplace’s MDR statement (and validated against published rates), and TDS to Form 26AS / Form 168.
For broader marketplace payout reconciliation across the merchant-fees layer, see the payment gateway reconciliation money page and the reconciliation software India framework. The authoritative statute text, CBDT notifications on Form 168 schema, and the historical Section 194O record are published by the Income Tax Department, Government of India.
Continue reading in this cluster
- TDS payment code 1035 e-commerce operator payouts — the master reference for code 1035 mechanics
- TDS Section 194O e-commerce reconciliation — closing out FY 2025-26 deductions cleanly
- Cross-era TDS reconciliation framework — the dual-form pattern across all payment codes
- Merchant fees cluster hub — full cluster index