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Indian e-commerce participants selling through Amazon, Flipkart, Meesho, Myntra, ONDC, and SaaS marketplaces face a Section 194O TDS regime whose specified rate dropped from 1% to 0.1% on 1 October 2024 and whose legacy section number changed from 194O of the Income-tax Act 1961 to §393(1) Sl. 8(v) payment code 1035 of the Income-tax Act 2025. Operators continuing to deduct at the old 1% rate, books still accruing TDS receivable at 1%, and Form 26AS / Form 168 entries that mix pre-October-2024 and post-October-2024 invoices all create silent reconciliation errors that surface only at year-end.
Reconciliation classifies every operator-facilitated sale on its payment-date stamp, applies the rate-by-date schedule (1% if payment date before 1 October 2024, 0.1% if on or after, 5% override under §394A if PAN/Aadhaar not furnished), computes the expected TDS on the gross sale value (not net settlement), and matches against the operator's deduction line on the settlement file plus the corresponding entry in Form 26AS / AIS / Form 168 quarterly statement, with the threshold exemption (₹5,00,000 cumulative for resident Individual/HUF with PAN) applied year-to-date per operator.
Operator-settlement-file connector with sale-date, payment-date, gross-amount, marketplace-commission, and TDS-deduction extraction; rate-by-date schedule keyed on payment date with cut-over 1 October 2024 (1% to 0.1%); PAN/Aadhaar-furnished flag per operator-participant relationship driving the §394A 5% override; participant-type classifier (resident Individual/HUF vs company/firm/LLP) gating the ₹5,00,000 threshold; cumulative year-to-date threshold counter per operator; Form 26AS / AIS / Form 168 matcher with quarter-specific reconciliation cadence.
A per-transaction Section 194O expected-vs-actual TDS variance report with recoverable over-deduction (operator still applying 1%), shortfall flags (TDS not deducted where threshold has been breached), threshold-trip alerts when year-to-date facilitated sales cross ₹5,00,000 for a resident Individual/HUF, and a quarterly cash-flow forecast for TDS receivable to be claimed in the next ITR.
A D2C SaaS analytics tool sells through Amazon’s marketplace channel and an Indian ONDC seller node at a combined ₹2 crore of gross annual facilitated supply. The CFO sees a ₹20,000 TDS deduction at year-end and wonders why it does not match the ₹2,00,000 figure her last finance lead had projected when 194O was first implemented in 2020. The answer is the Finance (No. 2) Act, 2024 — which cut the specified Section 194O rate from 1% to 0.1% with effect from 1 October 2024. The projection was outdated by a factor of ten. This article is for Indian finance teams selling through e-commerce operators who need to reconcile the deducted figure against the correct rate-by-date schedule under the Income-tax Act 2025.
Section 194O Rate History and Current Position — Quick Reference
| Element | Detail |
|---|---|
| Specified section (legacy) | Section 194O, Income-tax Act 1961 |
| Specified section (new regime) | §393(1) Schedule reference 8(v), Income-tax Act 2025 |
| Payment code (Form 168 / Form 131) | 1035 |
| Rate from 1 October 2020 to 30 September 2024 | 1% of gross amount |
| Rate from 1 October 2024 onwards | 0.1% of gross amount |
| Statute making the change | Finance (No. 2) Act, 2024 |
| Non-PAN / non-Aadhaar override rate | 5% under §394A (legacy §206AA) |
| Threshold (resident Individual/HUF with PAN) | No TDS if year-to-date facilitated sales below ₹5,00,000 |
| Threshold (company / firm / LLP) | No threshold — TDS from first rupee |
| Base | Gross amount of sale or service, not net of marketplace commission |
| Operator filing | Form 168 (Income-tax Act 2025); Form 26Q during transition |
| Participant credit | Form 26AS / AIS auto-populated; ITR pre-fill |
| Operator deduction certificate | Form 131 (Income-tax Act 2025); Form 16A during transition |
The single most material number on this card for any CFO modelling working capital: a participant doing ₹2 crore of facilitated supply per year sees ₹2,00,000 of TDS receivable under the old 1% regime, but only ₹20,000 under the current 0.1% regime — a tenfold drop in the TDS receivable balance that finance teams should have already adjusted in their FY 2024-25 forecasts.
What Section 194O Actually Requires
Section 194O of the Income-tax Act 1961 was inserted by the Finance Act, 2020 and came into force on 1 October 2020. The legislative intent was to bring the e-commerce supply chain into the TDS net at source — the e-commerce operator (Amazon Seller Services, Flipkart Internet, Meesho, Myntra Designs, Nykaa E-Retail, ONDC participating seller-side platforms, B2B SaaS marketplaces) is required to deduct TDS on the gross amount of sale of goods or provision of services facilitated by the operator on behalf of the e-commerce participant — the actual seller whose listing appears on the marketplace.
Under the Income-tax Act 2025 — which restructured Chapter XVII of the 1961 Act into a payment-code-driven schedule under §393 — the same obligation is codified at §393(1) Schedule reference 8(v), payment code 1035. The legacy section number 194O is no longer the operative citation; the payment code 1035 is. Internal TDS workflows that still cite “194O” remain understandable but produce stale Form 168 entries if not updated.
How the 1% to 0.1% Rate Reduction Came About
The Finance (No. 2) Act, 2024 — assented to on 16 August 2024 and giving effect to the Union Budget 2024-25 announcements — amended the specified rate in Section 194O from 1% to 0.1%, with effect from 1 October 2024. The amendment was a deliberate tenfold reduction in the burden imposed on small and medium e-commerce participants whose net margins on marketplace channels are routinely thin enough that a 1% gross-amount deduction caused working-capital strain disproportionate to the participant’s actual taxable income.
The reduction applies prospectively. Sales facilitated on or before 30 September 2024 carry TDS at 1% even if the operator’s payout cycle settles in October or later. Sales facilitated on or after 1 October 2024 carry TDS at 0.1%. The cut-over rule for reconciliation should anchor on the operator’s settlement-side payment date — which is the date the operator credits or unconditionally accrues the amount payable to the participant — and apply the rate live at that date.
Threshold Exemption — When Section 194O Deducts Nothing
The Section 194O obligation includes a participant-specific threshold. If the e-commerce participant is a resident Individual or Hindu Undivided Family, and the gross amount of sales or services facilitated by the e-commerce operator during the financial year does not exceed ₹5,00,000, AND the participant has furnished PAN or Aadhaar to the operator, no TDS is to be deducted. As soon as the year-to-date facilitated supply crosses ₹5,00,000, the operator must begin deducting at 0.1% on every facilitated rupee from that point — and any retrospective true-up rules in the operator’s settlement system apply only on a forward basis from the trip date.
The threshold does not apply to companies, partnership firms, LLPs, or any non-Individual/HUF participant. Those entities have TDS deducted on every facilitated rupee from the first transaction of the financial year. If PAN or Aadhaar is not furnished to the operator, the 5% non-PAN floor under §394A of the Income-tax Act 2025 (legacy §206AA) applies — overriding both the threshold exemption and the 0.1% specified rate. The 5% deduction floor is unchanged by the 2024 rate cut.
Worked Example — A D2C SaaS Selling Through Amazon
Consider a Mumbai-headquartered D2C analytics SaaS that retails on Amazon’s marketplace channel at ₹2 crore of gross annual facilitated supply, with the participant entity registered as a Private Limited (so the ₹5,00,000 threshold does not apply, and PAN has been duly furnished to Amazon Seller Services).
Under the post-1-October-2024 regime, Amazon deducts 0.1% on every facilitated rupee:
- Gross facilitated supply: ₹2,00,00,000
- TDS at 0.1%: ₹20,000 for the year
- Average monthly deduction: ₹1,667
- Settlement remittance from Amazon: net of marketplace commission (commonly 12-18% depending on category), MDR pass-through (where applicable), shipping and return-handling fees, and the ₹0.10 of TDS per ₹100 of gross
Compare against the pre-1-October-2024 regime at the same volume:
- Gross facilitated supply: ₹2,00,00,000
- TDS at 1%: ₹2,00,000 for the year
- Average monthly deduction: ₹16,667
That is a ₹1,80,000 reduction in the year-end TDS receivable for the same business doing the same volume — a tenfold drop. The participant’s FY 2024-25 year-end balance is also a transition period: April-September 2024 facilitated supply carries the old 1% rate, October 2024 - March 2025 carries the new 0.1% rate. A clean reconciliation must split the financial year on payment date and apply the schedule live.
The ₹20,000 deducted by Amazon is credited to the central government and reflects on the participant’s Form 26AS view, which under the new regime carries forward into the Annual Information Statement framework. When the participant files Form ITR-6 for the assessment year, the TDS pre-fill auto-populates ₹20,000 as TDS credit available, claimable against the year’s tax liability.
Spot the operator that is still deducting at the old 1% rate
The MDR leakage flag checker also surfaces TDS-rate variances on operator settlement files — paste a settlement export and the checker compares actual deductions against the rate-by-date schedule (1% before 1 Oct 2024, 0.1% on or after, 5% PAN-missing override) and flags any line that drifts.
Open the tool →Detection and Reconciliation Discipline
A robust Section 194O reconciliation routine matches three sources on a quarterly cadence:
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Operator settlement files — the gross facilitated supply per transaction, the operator’s marketplace commission deduction, the MDR pass-through where applicable, and the TDS deduction line item. The settlement file’s TDS line should resolve to 0.1% of gross for every transaction with a payment date on or after 1 October 2024.
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Form 168 / Form 26Q deposits — the operator’s consolidated quarterly TDS statement, where the deductee-wise breakdown should reconcile back to the settlement file line by line at the same 0.1% rate. Code 1035 should appear consistently across all post-October-2024 entries.
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Form 26AS / Annual Information Statement — the participant’s view, auto-populated by the deposit. Each quarter’s entry should match the operator’s deduction certificate (Form 131 under the new regime, Form 16A during the transition), and the cumulative annual figure should match the gross-multiplied-by-0.1% computation.
The single most common discrepancy in 2025 has been operators whose internal TDS configuration was not updated to 0.1% on 1 October 2024 and who continued to deduct at 1% for some weeks or months thereafter. The participant entity should compute the expected TDS, compare against the actual deduction, and raise a refund-claim or operator-side reversal request for every rupee of over-deduction discovered. The operator typically corrects the entry on the next settlement cycle and re-files the Form 168 entry; the participant’s Form 26AS / AIS view reflects the correction within one to two months.
The second most common discrepancy is a resident Individual/HUF participant whose year-to-date facilitated supply just crossed ₹5,00,000 mid-quarter, where the operator’s threshold counter did not trip in time and TDS was either over-deducted at 0.1% on transactions before the trip date (when no deduction was due) or under-deducted (i.e., zero) on transactions immediately after the trip date. A clean year-end true-up requires reconstructing the year-to-date counter from the operator’s transaction log and reconciling against the operator’s TDS line.
Distinguishing Section 194O TDS from GST Section 52 TCS
Marketplace sellers routinely conflate two adjacent obligations:
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Section 194O is income-tax TDS, deducted at 0.1% (post-October-2024) on gross facilitated supply, credited to Form 26AS, claimed against income-tax liability in the ITR. Code 1035 under §393(1) Sl. 8(v).
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Section 52 of the CGST Act is GST-side TCS, collected at 1% on net taxable supplies, reported in GSTR-8 by the operator, credited to the participant’s GST electronic cash ledger, and offset against output GST in GSTR-3B. This is GST law, completely unchanged by the Income-tax Act 2025, and operates in a separate ledger.
Both obligations apply to the same marketplace transaction in parallel — a single ₹1,000 facilitated sale to a GST-registered seller triggers ₹1 of 194O TDS (income tax) and ₹10 of Section 52 TCS (GST), and both flow through different reporting forms into different government ledgers. A reconciliation that nets them together as one number is wrong.
Common Settlement-File Patterns Worth Flagging
- Operator’s settlement file shows TDS deduction at 1% on a transaction dated 5 October 2024 — flag for rate-update lag, raise reversal.
- Operator’s deduction certificate cites legacy section “194O” with no payment code 1035 reference — acceptable during transition, but the underlying Form 168 entry should reference code 1035 going forward.
- 5% deduction floor applied even though participant did furnish PAN — flag for PAN-furnishing record mismatch; check the operator’s KYC database against the participant’s PAN submission record.
- Operator pro-rates the deduction on net settlement (after marketplace commission) instead of gross — flag for base-amount error; the statute requires deduction on gross.
- Threshold exemption applied to a Private Limited participant — flag for participant-type misclassification; threshold is for resident Individual/HUF only.
Continue Reading on the Merchant-Fees Cluster
- Income-tax Act 2025 TDS section mapping — full cross-reference from legacy section numbers to §393/394/413 payment codes 1001-1092, including code 1035 for 194O.
- Form 168 new TDS statement under Income-tax Act 2025 — the consolidated quarterly statement that now carries the 0.1% deductions made under code 1035.
- MDR fee reconciliation against contracted gateway rates — the sister discipline for the gateway settlement side of marketplace sales, where MDR variance reconciliation runs alongside TDS variance reconciliation.
- Merchant-fees cluster hub — full list of articles on MDR, interchange, platform fees, and operator-side deductions.
- Payment gateway reconciliation pillar — the umbrella money page for reconciling gateway and marketplace settlements end-to-end.
The Section 194O cut from 1% to 0.1% is one of the cleanest examples of a rate change that materially improves marketplace-seller working capital but is silently fumbled at the operator side when configuration is not updated on time. A monthly reconciliation routine that compares expected-versus-actual TDS at the 0.1% rate against every operator’s settlement file catches the residual 1% deductions, drives the reversal claims, and protects the year-end TDS receivable balance from drift.