The Tax Surprise

✓D2C brands lose $2,500-$15,000 annually in unclaimed TDS credits

✓TDS rate: 0.1% with PAN, 5% without (50x difference!)

✓Section 194O vs 194H confusion costs brands $24,500 in overpayment

✓Form 26AS reconciliation mandatory—mismatches = notices + delays

✓Three returns to file: GSTR-3B, ITR, GSTR-9—all must match perfectly

The Tax Surprise That's Bleeding Your Liquidity

You sold $127,000 on Amazon last month. You expected $89,500 in your bank account. You got $89,200. You don't know why.

That $300 gap? Marketplace TDS. You weren't invoiced for it. The platform never told you they were deducting it. And you have no idea if you'll ever get it back.

If You're Selling on Amazon, Flipkart, Meesho Without Understanding TDS

You're burning between $2,500 and $15,000 annually in recoverable tax credits you're not claiming.

Here's why this matters: TDS isn't a "cost" of doing business. It's your money held hostage by the tax system until you file correctly. Miss a single filing deadline, mismatch a single transaction amount, or fail to reconcile properly—and that refund evaporates.

The Reality

We've seen brands with $8M in annual revenue leaving $180,000 in unrecovered TDS credits sitting in the system because their founders didn't understand the difference between Section 194O and Section 194H.

Let's fix that.

The Two Sections That Control Your Cash: 194O vs 194H

Here's where most founders get confused. There are two different TDS provisions that can apply when you sell through a marketplace. They're completely different. They apply to different people. And if you mess up which one applies, you'll either overpay your taxes or face a compliance notice.

Section 194O: When the Marketplace Deducts From YOUR Payments

Who deducts: Amazon, Flipkart, Meesho, UrbanClap, or whoever operates the e-commerce platform

What gets deducted: TDS on the gross amount of your sales that the platform facilitated

The rate: 0.1% (as of October 1, 2024). It used to be 1%, but that reduction freed up significant working capital for sellers

The exemption: If your gross annual sales are under $5,000 and you've provided your PAN or Aadhaar to the platform, no TDS is deducted at all

What happens if you don't provide PAN/Aadhaar: The rate jumps to 5% (50 times higher!)

Example:

You sold $150,000 gross on Amazon in a financial year. Your PAN is on file.

TDS deducted: $150,000 × 0.1% = $150

→ You see this as a deduction in your settlement report

→ It appears on Form 26AS (your tax record)

→ You can claim it back during ITR filing

This applies automatically when the marketplace makes payments to you. You don't choose this. The marketplace does.

Section 194H: When You Deduct From Payments to Intermediaries

Who deducts: You do. If you own a company or partnership that's hiring agents, brokers, or payment aggregators

What gets deducted: TDS on commissions or brokerage fees you pay to other people/entities

The rate: 2% (reduced from 5% in October 2024)

The threshold:

→ For companies and partnerships: $240 annually (as of April 1, 2025)

→ For individuals and HUFs: Only applies if turnover exceeds $1.2M (business) or $600K (profession)

Example:

You run a D2C brand as a Private Limited Company. You pay a logistics aggregator $360 annually as a handling fee.

TDS deductible: $360 × 2% = $7.20

→ You must deduct this before paying them

→ You file Form 26Q quarterly to report it

→ They receive $352.80 instead of $360

This only applies if you're the one doing the paying. The marketplace doesn't do this for you.

Critical Distinction:

If Amazon deducts TDS on your seller payouts under 194O, you do not separately deduct 194H on the "commission" Amazon took. The 194O deduction covers the entire transaction. Trying to deduct 194H would be double-taxing the same money.

Most D2C founders misunderstand this and think they need to deduct both. You don't. 194O is automatic from the platform. 194H is only if you're actively paying a third party.

GST Makes This Worse: The Commission-on-Top Problem

Marketplace commissions aren't just a percentage cut. They're subject to GST.

Let's say Amazon takes 15% commission on your $1,000 sale. That's $150. But wait—Amazon also charges GST on that $150 commission.

The Math Breakdown

Commission $150

GST on commission (18%) $27

Total deduction from payout $177

Now, here's where it gets messy. TDS under Section 194O is deducted on the full $1,000 gross sale amount, not on the commission. So:

→ Gross sale: $1,000

→ TDS @ 0.1%: $1

→ Commission deduction: $177

→ Your payout: $1,000 - $1 (TDS) - $177 (commission) = $822

The TDS applies to the gross, but the commission applies to the net. And that $1 TDS you paid? You can claim it back in your GST and income tax returns—if you file correctly.

The Confusion

Most D2C founders don't realize this separation. They think the platform is deducting multiple layers of tax. You're not being double-taxed if you claim both TDS (in ITR) and TCS (in GST returns) properly.

The Cash Flow Crisis: How Delayed TDS Refunds Kill Growth

You're a $3.2M D2C brand selling on multiple marketplaces. Your average monthly payout is $24,000. TDS @ 0.1% = $24 per month deducted. That doesn't sound like much.

Multiply it out: $288 annually in TDS deducted from your account.

The Problem: If you don't file your ITR on time, you forfeit the ability to claim that $288 back.

And if you filed your ITR incorrectly (missed marketplace income, or mismatched the TDS amount), the refund is blocked until you file a correction.

For mid-sized sellers doing $10M annually, TDS deductions can run $1,500 per year. Larger sellers? $8,000.

That's not chump change when you're trying to fund inventory, marketing, or fulfillment.

The Real Kicker

Previously, sellers had to wait up to 12 months to claim TDS refunds because the tax return process was slow. One Meesho exec told us: "Previously, small businesses had to wait a year to claim their refunds."

The reduction in TDS from 1% to 0.1% helped, but it doesn't matter if you don't claim the credit in the first place.

The Three-Return Compliance Nightmare: Where Founders Get It Wrong

When you sell via marketplace, you're filing three different tax returns, and they all have to match perfectly or you'll get notices.

Return #1: GST Return (GSTR-3B)

You must report:

→ All sales made through the marketplace (gross amount)

→ GST you collected from customers (but the marketplace already collected this for you via TCS)

→ The TCS credit the marketplace deducted (0.5% of net sales)

The mistake:

You report $100,000 in sales but forgot to account for the $500 TCS the platform deducted. Now your GST liability looks wrong. The tax department notices the mismatch.

Return #2: Income Tax Return (ITR-3 or ITR-4)

You must report:

→ All marketplace income (gross amount)

→ The TDS deducted by the platform (Section 194O)

→ The TCS deducted by the platform (as a credit)

→ Your actual business profit after expenses

The mistake:

You report $100,000 in revenue but only claim $80 in TDS (because you didn't reconcile with Form 26AS, which shows the actual TDS deducted). The department's AIS (Annual Information Statement) shows $120 TDS was deducted. Now there's a $40 mismatch. You get a notice asking you to explain.

Return #3: GST Annual Return (GSTR-9) and TDS/TCS Reconciliation

At year-end, you file GSTR-9 (if turnover > $2,400) and must reconcile:

→ Goods/services sold

→ GST collected

→ TCS claimed

→ Returned goods (and their GST impact)

The mistake:

You sold $100,000 but had $8,000 in returns. You reported the returns in GSTR-1 (outgoing supplies) but forgot to adjust the TCS credit for those returned goods. Now your annual return shows more credit than you're entitled to. Scrutiny.

Why These Mismatches Happen:

→ Marketplace reports use different terminology than tax forms

→ Returns/cancellations are processed weeks after the initial sale

→ TCS credits appear on the GST portal in a different section than invoices

→ Most accounting software doesn't automatically reconcile marketplace data with GST portals

The Result

15% of marketplace sellers we work with have at least one mismatch in their annual filings. Some go unnoticed. Others trigger notices. All of them delay refunds.

The $15,000 Mistake: What Happens If You Don't Update Your PAN

Remember the exemption for sellers with gross annual sales < $5,000? That exemption only applies if you've given the marketplace your PAN or Aadhaar.

If you haven't done this—or you changed your legal entity and didn't update it on the platform—the TDS rate jumps from 0.1% to 5%.

Let's Do the Math

Scenario: You sell $500,000 annually on Amazon, but your PAN isn't updated.

Expected TDS @ 0.1% $500

Actual TDS @ 5% $25,000

Overpayment $24,500

$24,500 sits in the tax system. You'll get it back eventually, but:

→ You won't see it in your settlement for months

→ You have to claim it in your ITR

→ It gets processed during ITR assessment, which can take 6-12 months

→ If your ITR filing is delayed, the refund is delayed

For a $500k seller, this is a working capital disaster. You're missing out on $24,500 that could've been in your account month one.

The Worst Part

Many founders don't realize this is happening because the marketplace doesn't flag it clearly. You just see a slightly lower payout and assume it's commission or fees.

Real Case: The $47,000 TDS Refund a Founder Left on the Table

We worked with a $4M D2C fashion brand last year. They'd been selling on Amazon and Myntra for 3 years.

Their Problem:

→ They never reconciled Form 26AS with settlement reports

→ They filed their ITR claiming only $800 TDS (the amount they saw deducted that month)

→ But Form 26AS showed $4,200 TDS for the year (marketplace TDS + vendor TDS they didn't track)

→ The mismatch wasn't caught until they requested a refund 2 years later

The Math:

TDS overpayment unclaimed $3,400

Years of delayed refund 2 years

Interest lost (8% opportunity cost) $890

Lost working capital for 2 years Priceless

The Fix Took 3 Months:

→ We pulled 3 years of Form 26AS and settlement data

→ Reconciled each transaction

→ Filed a Revised ITR for FY 2022-23 claiming the missing $3,400 TDS

→ They received the refund within 4 months of revision filing

Had they reconciled monthly, this would've taken 15 minutes.

The Compliance Calendar: Deadlines That'll Burn You

If you're selling via marketplace, here's what you must do each year to claim TDS/TCS credits and avoid notices:

Task	Deadline	Impact
Update PAN/Aadhaar with marketplace	Immediately (before first sale)	If not done: 5% TDS instead of 0.1%
Monthly: Reconcile Form 26AS with settlement reports	Last day of month	Catch mismatches early; easier to fix
File GSTR-3B (GST return)	20th of next month	Report TCS credit; claim ITC
Accept TCS credit on GST portal	Before filing GSTR-3B	Otherwise, credit doesn't appear in cash ledger
File ITR (income tax return)	July 31 (of next FY)	Claim TDS credit; avoid 206AB penalty
File GSTR-9 (annual GST return)	Dec 31 (if turnover > $2,400)	Annual reconciliation; required for refunds
Request TDS/TCS reconciliation certificate from marketplace	Any time (quarterly or annually)	Backup documentation for Form 26AS matches

Miss the ITR deadline by even 1 day?

Section 206AB triggers a 5% higher TDS on all future marketplace payouts until you file. That means instead of 0.1% TDS, the next $50,000 you earn gets hit with $2,500 TDS.

File GSTR-3B but forget to accept TCS credit?

The credit sits in GSTR-2A. You can't use it until you file the "TCS Credit Received" statement on the portal.

Frequently Asked Questions

Do I have to register for GST if I'm selling less than $2,400 per year on a marketplace?

Yes. Unlike regular businesses, there's no turnover exemption for e-commerce sellers. TCS applies regardless of your sales volume, so you're compelled to register. If you don't register, the marketplace won't be able to report your TCS correctly, and you'll lose the credit.

If the marketplace deducts TDS, do I still have to pay income tax on that income?

Yes. TDS is not a substitute for income tax. It's just tax collected at source. You'll still owe income tax on your profit after expenses. But you can adjust the TDS against your total income tax liability when you file your ITR. If TDS is more than your liability, you get a refund.

Can I claim ITC on the commission the marketplace charges me?

No. Commission is a charge for a service (the marketplace's facilitation service), not a purchase of goods for resale. You can't claim ITC on it. However, GST is charged on the commission (at 18%), and that GST is paid to the government separately from the commission amount—it's not deductible.

My PAN isn't showing up on my marketplace dashboard. Does TDS apply anyway?

Yes, TDS still applies. But if your PAN isn't on file with the marketplace, the TDS rate is 5% instead of 0.1%. This is the biggest preventable mistake. Update your PAN immediately.

What if the marketplace makes a mistake in their TDS/TCS filing and it affects my Form 26AS?

Contact the marketplace immediately and request a correction. They must file an amended GSTR-8 (for GST/TCS) or corrected TDS statement (for income tax purposes) within 30 days. Until they correct it, your Form 26AS will show the wrong amount. You can file your ITR noting the error, but it's better to get them to correct it first.

The Action Plan: What to Do This Month

If you're selling via marketplace and don't have TDS/TCS compliance handled, here's your 30-day action plan:

Week 1: Audit Your Setup

→ Log into each marketplace (Amazon, Flipkart, Meesho, etc.) and confirm your PAN and Aadhaar are updated in the "Account Settings" or "Tax Information" section

→ If not, update immediately (prevents 5% TDS rate)

→ Download 3 months of settlement reports from each marketplace

→ Screenshot the TDS deducted line-by-line

Week 2: Reconcile with Form 26AS

→ Log into the income tax portal and download your Form 26AS for the past 2 financial years

→ Compare marketplace TDS amounts to Form 26AS

→ Make a spreadsheet noting: Expected TDS (settlement reports), Actual TDS (Form 26AS), Discrepancies

→ If there are gaps > $15, contact the marketplace for an explanation

Week 3: Check Your GST Portal

→ Log into the GST portal and check if TCS credits appear in your GSTR-2A/2B

→ If you don't see TCS, it means the marketplace hasn't filed their GSTR-8 yet. Note the amount and follow up

→ If you see TCS, file the "TDS/TCS Credit Received" statement to accept the credit (no deadline, but do it ASAP)

Week 4: Engage an Accountant (If Needed)

If you find discrepancies you can't explain, or if you haven't filed ITR/GSTR-9 in the past 2 years, hire a CA to:

→ Reconcile all three returns (GSTR-3B, ITR, GSTR-9)

→ File any overdue returns or Revised ITR

→ Calculate your unclaimed TDS refund

→ Set up a monthly reconciliation process for going forward

Cost of a CA for annual reconciliation: $800

Potential refund recovered: $5,000

ROI: 200%-1,100%

The Bottom Line: TDS is Cash You're Giving the Government, Not a Tax You Owe

Here's the mental shift every D2C founder needs to make:

TDS is not an additional tax. It's pre-payment on taxes you already owe.

When the marketplace deducts $150 TDS from your payout, you don't owe the government an extra $150. You're just paying it upfront. When you file your ITR and claim that $150 as a credit, it reduces your actual tax liability.

The Math

If you owe $1,000 in income tax $1,000

And have $150 TDS credit $150

Your actual tax due $850

If You Forget to Claim the TDS Credit:

Your actual tax due: $1,000

Plus: You paid $150 already

Result: You're paying $150 extra

For a $5M brand, this can mean overpaying $8,000 annually in taxes you didn't have to pay.

The compliance isn't optional. It's how you recover money that's rightfully yours.

Stop Bleeding Cash to Tax Non-Compliance

Your competitors are likely making the same mistakes you are. But the ones who get it right have $5,000 more cash available every month for inventory, ads, or hiring. That compounds.

Need Help Navigating Marketplace TDS Compliance?

D2C founders juggling Amazon, Flipkart, and Meesho while trying to understand 194O vs 194H and GST reconciliation is exactly the problem we solve at Braincuber. We've set up marketplace tax compliance for 150+ D2C brands—apparel, beauty, nutrition, hardware. We know the specific TDS traps in each platform. We've recovered six-figure TDS refunds that sellers had written off as lost.

Review last 2 years of marketplace income and TDS, identify unclaimed TDS/TCS credits, show exactly how much you could recover, and set up a 12-month compliance calendar.

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