Tax Deducted at Source (TDS) on ecommerce is one of the less-understood compliance requirements for Indian online sellers. Section 194-O was introduced in 2020 specifically targeting ecommerce operators — the Amazons, Flipkarts, and Meeshos of the world. If you sell through one of these platforms, TDS is already being deducted from your payouts automatically. But if you run your own Shopify store and sell directly to customers, Section 194-O does not apply to you — you handle your taxes differently. Understanding the distinction prevents over-compliance anxiety and helps you plan your cash flow correctly.
What is Section 194-O and Who Does It Apply To?
Section 194-O of the Income Tax Act requires ecommerce operators (defined as digital platforms that facilitate sales between buyers and sellers) to deduct TDS at 1% on the gross amount of sales facilitated for their sellers. The threshold is ₹5 lakh annual sales per seller. So if you sell ₹6 lakh worth of products on Amazon in a year, Amazon deducts ₹6,000 (1% of ₹6 lakh) from your payouts and deposits it with the income tax department in your name. This TDS is a credit against your final income tax liability. The critical point for Shopify sellers: Shopify is a platform that hosts your store, but it does not “facilitate” transactions between you and buyers in the same way Amazon does. You are the seller and operator simultaneously. Section 194-O does not require Shopify to deduct TDS on your store’s sales. You are responsible for your own advance tax payments.
How Shopify Sellers Should Handle Income Tax
If you run a Shopify store as your primary business, your income is treated as business income (not salary). You file under ITR-3 or ITR-4 (presumptive taxation for businesses with turnover below ₹3 crore). Under the presumptive scheme (Section 44AD), you can declare 8% of turnover (6% for digital receipts) as profit without maintaining detailed books. Beyond the threshold, you maintain proper books and get audited. To avoid a large tax bill at year-end, pay advance tax quarterly: 15% of estimated tax by June 15, 45% by September 15, 75% by December 15, and 100% by March 15. Deduct legitimate business expenses: Shopify subscription, payment gateway fees, advertising costs, packaging materials, courier costs, professional fees, and home office expenses (if applicable) all reduce your taxable profit. For ongoing tax strategy for your ecommerce business, speak to the OneOnic team for referrals to ecommerce-specialist CAs.
Frequently Asked Questions
If I sell on both Amazon and Shopify, does TDS apply to my Shopify sales?
TDS under Section 194-O applies only to your Amazon sales (Amazon deducts it). Your Shopify direct sales are not subject to 194-O TDS. However, all income — whether from Amazon, Shopify, or any other channel — must be declared in your income tax return. The TDS credit from Amazon will reduce your final tax liability. You pay advance tax throughout the year on your combined income from all sources.
Is TDS the only tax I need to worry about as a Shopify seller?
No. As a Shopify seller in India, you need to manage GST (monthly returns, quarterly for smaller businesses), income tax (advance tax quarterly, annual ITR filing), and TDS if you pay professionals or rent above certain thresholds (you become a TDS deductor when you hire consultants above ₹30,000/year or pay rent above ₹2.4 lakh/year). Professional tax (state-specific) may also apply. Working with a CA who specialises in ecommerce is strongly recommended once your turnover crosses ₹25-30 lakh annually.
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