How India Taxes E-Commerce in 2025

 

India uses two parallel tax codes to regulate online trade:

1. Goods and Services Tax (GST) – an indirect tax that applies to every sale or service rendered on a digital platform.
2. Direct-tax rules – chiefly Section 194O (TDS on marketplace payouts) and the now-withdrawn equalisation levy that once targeted foreign operators.

Understanding both is essential whether you run a marketplace, sell on Amazon/Flipkart, or operate a D2C web-shop. Below is a concise walkthrough of the current framework and the headline changes that took effect this year.

1. GST Rules for E-Commerce Operators (ECOs)

Topic	2025 position	Key point for sellers
GST rate on platform commission, listing fees, hosting services	18 % standard slab	Charged by the platform; sellers take input-tax credit (ITC) if eligible.
GST on restaurant food delivered via apps	5 % (no ITC to restaurant)	Platform, not the eatery, remits the tax.
GST on delivery charges collected by the platform	18 % when treated as a separate service	Bundling delivery into product price adopts the product’s GST rate.
Tax-collected-at-source (TCS)	1 % on gross value of each sale; deposited by ECO	Auto-reflects in sellers’ cash ledger; claim credit while filing GSTR-3B.
Registration threshold for online sellers	Nil – every e-commerce seller must obtain GSTIN, even below ₹40 lakh turnover	Aadhaar-based e-KYC now speeds approvals.
E-invoicing	Mandatory for turnover ≥₹10 crore	Violations block ITC to buyers; integrate billing software early.

2025 GST reform highlights

• Two-slab system (5 % essentials, 18 % standard) replaces the earlier 5-12-18-28 matrix, easing rate lookup and invoicing.
• Delivery services explicitly pulled into 18 % to end ambiguity that spawned disputes.
• Stricter auto-matching of TCS with sellers’ returns; late reconciliation now triggers system-generated notices.

2. Direct-Tax Provisions Affecting Online Marketplaces

2.1 Section 194O – TDS on Marketplace Payouts

Rule	Current rate	Scope
TDS on gross sales proceeds paid or credited to resident sellers	1 % once yearly sales >₹5 lakh (PAN/Aadhaar provided)	Operators must deduct on gross amount, ignoring returns.
If seller fails to furnish PAN/Aadhaar	5 % under Section 206AA	Ensures KYC compliance.
Non-resident sellers	Section 194O does not apply	Income may still be taxable under other sections.

The TDS auto-appears in Form 26AS, offsetting the seller’s final income-tax liability.

2.2 Sunset of the Equalisation Levy

Parliament repealed the 6 % “Google Tax” on foreign digital advertising and the 2 % marketplace levy from 1 August 2025, citing progress on OECD Pillar One negotiations. Overseas operators supplying Indian customers no longer face this extra cost, although they remain subject to GST if they cross ₹20 million in annual Indian turnover.

 

Obligation	Frequency	2025-26 due date
GSTR-1 (outward supplies)	Monthly	11th of next month
GSTR-3B (summary return & payment)	Monthly	20th of next month
TCS statement GSTR-8	Monthly	10th of next month
Payment of TCS	Monthly	Same as GSTR-8
Quarterly return option (QRMP) for small sellers	Turnover ≤₹5 crore	13th of month after quarter
TDS return under 194O (Form 26Q)	Quarterly	31 Jul / 31 Oct / 31 Jan / 31 May

3. Compliance Timeline (FY 2025-26)Late filing of GSTR-8 attracts a ₹100 per-day late fee (CGST+SGST), while delayed TDS returns draw ₹200 per day plus interest at 1 % a month.

4. Typical Tax Workflow for an Online Sale

1. Buyer pays ₹1,000 product price + ₹180 platform commission GST + ₹50 delivery fee (+₹9 GST).
2. Platform collects total and immediately deducts:

• Commission + GST (18 %)

• Delivery GST, if separate (18 %)

• TCS @1 % on ₹1,050 sale value.

3. Net settlement to seller = ₹1,050 – commission – TCS.
4. Platform remits GST and TCS to government; uploads data in GSTR-8.
5. Seller claims ITC on commission GST and delivery GST; TCS credit offsets GST liability.

5. Strategic Tips for 2025

• Automate reconciliation – Use accounting tools that ingest GSTR-2B, GSTR-8, and marketplace fees to match ITC and TCS monthly.
• Segment delivery income – If you operate own website, break out delivery as a separate line item; keeps principal goods in 5 % slab where possible.
• Opt for composition? Not allowed on marketplaces after new CBIC rules; small sellers must shift to regular scheme and manage ITC flow.
• Watch e-invoice limits – A sudden festive-season spike can push turnover over ₹10 crore; enable API integration beforehand.
• Plan for higher working capital – Repeal of equalisation levy may lower ad costs, but 18 % GST on logistics raises expenses; revisit pricing models.

 Read Also: gst 2-0 rate rationalization guide businesses

Bottom line: 2025 brings simpler GST slabs but tighter digital oversight. Marketplaces handle most front-end compliance, yet sellers must stay vigilant on TCS credit, e-invoicing and Section 194O TDS to avoid cash-flow shocks and penalties.