Income Tax Compliance for Ebay Sellers in India

Selling on Ebay can be a fantastic way to reach a global customer base and boost your income. However, while selling on Ebay offers immense growth opportunities, it also brings several income tax compliance responsibilities. Whether you’re a part-time seller or a full-time e-commerce business, you must understand your tax obligations under the Income Tax Act, including maintaining proper books of accounts, TDS compliance, filing income tax returns etc. This guide will help you stay compliant and avoid penalties while maximizing your tax benefits, which is explained in below sections.

Maintenance of Books of Accounts u/s 44AA

1.  According to Section-44AA of the Income Tax Act every business is required to maintain books of Accounts if 

• Individual & HUF : If income from business or profession exceeds Rs.2.50 lakh & total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds Rs.25 lakh in any one of the three years immediately preceding the previous year
• Others (Firm/LLP/Company etc.) :  If income from business or profession exceeds Rs.1.20 lakh & total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds Rs.10 lakh in any one of the three years immediately preceding the previous year
• Where the business  is newly set up in any previous year, if income from business or profession is likely to exceed Rs.1.20 Lakh or Rs.2.5 Lakh (as the case may be) or his total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed Rs.10 Lakh or Rs.25 Lakh (as the case may be), during such previous year

Hence Accounting for Ebay sellers is mandatory if their business exceeds any of Income or turnover limit during the relevant previous year as tabulated below

TDS Compliance for eBay Sellers

Ebay sellers also need to comply with following TDS provisions for payments they make

Liability to deduct TDS : Any person making specified payments mentioned under the Income Tax Act is required to deduct TDS at the time of making such specified payment. But no TDS has to be deducted if the person making the payment is an individual or HUF whose sales from business or profession doesn’t exceed Rs.1 crore or Rs.50 lakhs, respectively.

To know more about TDS compliance Click here

Specified Payments for TDS : Not all payments are required to be made after deducting TDS. Some of the common payments on which TDS is required to be deducted are Salary, Interest, Rent, Commission, brokerage, Remuneration & interest to Partner etc.

To know all the Specified payments, Rate & limit of Amount for deducting TDS Click here

TDS Payment Due Dates and Interest on Late Payment 

TDS is to be deducted on the date of payment or credit whichever is earlier. It is to be paid to govt. By the 7th of next month to the month in which the TDS was deducted. For the month of march it is 30 April. Payment beyond this date will attract Interest at 18%.

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TDS Return – Due Date, Penalty and Forms

Ebay sellers are also required to file TDS Returns on quarterly basis for all payments made after deducting tds for a quarter. TDS Return is to be filled by 31th of the month succeeding the quarter end. For the Quarter ended in March, it is 31st May .

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TDS (Tax Deducted at Source) under Section 194-O

The Income Tax Act, 1961, introduced Section 194-O, mandating e-commerce operators to deduct TDS at 0.1% (w.e.f. 01 October 2024) on the gross amount of sales or services facilitated through their platform.

• Threshold: This TDS applies if your gross sales through a single e-commerce operator (eBay, in this case) exceed ₹5,00,000 in a financial year.
• PAN/Aadhaar: If you haven’t provided your Permanent Account Number (PAN) or Aadhaar, the TDS rate increases to 5% u/s 206AA of Income Tax Act.
• Checking TDS: You can verify the TDS deducted by eBay in your Form 26AS on the income tax e-filing portal. This TDS can be claimed as a credit when filing your ITR

Income Tax Return compliance for Ebay sellers

• Like every other person, Ebay seller is also required to file ITR if his total Income exceeds basic exemption limit & In case of firm/LLP/Company (other than Individual & HUF) ITR is to be filled mandatory even if total income does not exceed basic exemption limit under Income Tax.
• He can either file ITR in new Tax regime or Old Tax Regime whichever is more beneficial to him in terms of tax saving & other Financial goals.
• He can also file ITR on presumptive basis u/s 44AD subject to some eligibility criteria mentioned in section 44AD. 
• Choosing the Right ITR Form: The appropriate ITR form depends on your business structure and income:
• ITR-3: Generally filed by individuals and HUFs having income from “Profits or Gains of Business or Profession.” Most eBay sellers operating as a proprietorship would fall under this.
• ITR-4 (Sugam): Can be used by individuals/HUFs/Partnership Firms opting for the presumptive taxation scheme under Section 44AD or 44ADA, provided their turnover is below specified limits and they meet other conditions. This can simplify tax filing for eBay sellers.
• ITR-5/6: For companies or LLPs.

Tax Audit u/s 44AB (if applicable)

Every E-bay seller is required to get his books of accounts Audited u/s 44AB of Income Tax Act if his turnover in previous year exceeds Rs.1Crore/3Crore/10Crore depending on percentage of cash transaction involved in the total turnover.

To know more about Tax Audit Click here

Reconciliation with GST Returns

For Ebay sellers registered under GST. It is crucial to ensure that income reported in the Income Tax Return (ITR) aligns with the details furnished in GST returns. Discrepancies between your books, GST filings, and income tax filings may trigger notices from tax authorities.

Sales Turnover

• Compare total sales reported in GSTR-1 and GSTR-3B with the turnover declared in ITR.
• Include export sales and zero-rated supplies reported via Ebay (if any).

Input Tax Credit (ITC)

• Ensure that ITC claimed in GST returns matches the expenses recorded in books.
• Mismatch in ITC may result in disallowance or scrutiny under both GST and income tax laws.

Tax Collected at Source (TCS)

• Unlike other Indian e-commerce operators (Amazon, Flipkart etc.), Ebay-being a foreign platform, is currently not collecting TCS under GST from Indian sellers.
• However, if it does so , Ebay sellers would be required to match TCS credit under GST (Section 52) collected by eBay with the TCS entries in GSTR-2A or 2B.
• Ensure the same credit is claimed while filing GSTR-3B.

Matching Bank Receipts with Form 26AS

Under Section 194O, Ebay deducts 0.1% (w.e.f. 01 October 2024) TDS on the gross amount paid to sellers. These details reflect in Form 26AS on the Income tax portal, which should be cross-verified with your books.

However it is practically not possible to exactly match the receipts because Ebay deducts the TDS using the conversion rate on the date of credit/payment but Sellers records the sales in books, using the conversion rate on the date of sale (invoice date). For proper accounting the  difference can be recorded as Foreign exchange gain/loss in the books of accounts. However, material mismatches must be matched or explained.

Whether export income is exempt under Income Tax in India like it is Zero rated under GST

Unlike GST, which directly zero-rates export transactions, income tax benefits for exporters in India are available through various schemes aimed at compensating costs, incentivizing investment, or providing deductions on profits based on specific business structures or activities & other conditions.

Following are the additional benefits available to exporters apart from GST

Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme

The RoDTEP scheme is a significant export incentive designed to reimburse embedded central, state, and local taxes and duties that are not compensated for under any other scheme.These typically include taxes like electricity duty, mandi tax, coal cess, local levies on fuel, toll tax, and stamp duty on import-export documentation. The scheme provides benefits in the form of duty credit or electronic scrips (e-scrips), calculated as a percentage of the Freight on Board (FOB) value of exports. The entire process, from generation to utilization and transfer of scrips, is end-to-end digitized and operates through the exporter’s electronic credit ledger on the ICEGATE portal.

To avail of the scheme, exporters must declare their intent to claim RoDTEP in the shipping bill. Claims are processed by Customs, and eligible amounts are generated as a scroll in the user’s ICEGATE account. It is crucial that incentives under RoDTEP are subject to the realization of sales proceeds within the time frame allowed under the Foreign Exchange Management Act, 1999 (FEMA); failure to do so can result in recovery of rebates/incentives along with penalties. A robust monitoring and audit mechanism, including an IT-based Risk Management System, is in place to verify exporter records. A key aspect of RoDTEP is its complementary nature with GST refunds; the benefit under RoDTEP is explicitly in addition to refunds claimed under the GST Act. This addresses a critical gap left by GST, which, while zero-rating the supply and refunding input taxes, does not cover all embedded taxes and duties that contribute to the cost of production and export. RoDTEP’s purpose is to make exports truly competitive by neutralizing these remaining indirect costs, thereby indirectly boosting profitability and positively impacting the income tax base. This mechanism ensures a “level playing field” for Indian exporters by compensating for taxes that are part of the domestic cost structure but should not be borne by the export product.

Export Promotion Capital Goods (EPCG) Scheme

The EPCG Scheme is an incentive aimed at facilitating the import of capital goods for export-oriented production. It allows for the import of capital goods (for pre-production, production, and post-production activities) at zero customs duty. Historically, it also provided exemption from IGST and Compensation Cess on such imports until June 30, 2022.

The primary condition for availing benefits under the EPCG Scheme is the fulfillment of an export obligation (EO). This EO is typically equivalent to 6 times the duties, taxes, and cess saved on the imported capital goods, and must be fulfilled within a period of 6 years from the date of issue of the authorization. While not a direct income tax deduction, the EPCG scheme functions as an investment incentive for exporters by reducing the cost of capital expenditure. Lower capital costs can lead to higher efficiency, increased production capacity, and ultimately, higher profits, which are then subject to income tax.

This scheme is more relevant for Ebay sellers, who are manufacturers or large-scale exporters making substantial investments in machinery and equipment, rather than a typical small seller primarily engaged in trading.

Special Economic Zones (SEZ) Tax Exemptions

Businesses operating within Special Economic Zones (SEZs) are eligible for significant profit-linked income tax exemptions, reflecting the government’s policy to promote exports through dedicated economic hubs. For new undertakings set up in an SEZ, the export profit is eligible for a 100% tax exemption for the first five years from the commencement of manufacturing. This is followed by a partial tax exemption of 50% for the next five years. A further tax exemption of 50% of the export profit is available for an additional five years, contingent on an equivalent amount of profit being retained and transferred to a special reserve in the books of account.

These SEZ benefits are highly attractive profit-linked income tax exemptions, but they necessitate physical establishment and operation within a designated SEZ.

This implies a significant strategic decision and investment, making these benefits less relevant for a typical small Ebay seller who might be operating from a home office or a small independent setup. However, for larger, dedicated export operations, SEZs offer a highly conducive environment with substantial direct tax advantages.

Startup India Tax Exemptions (Section 80-IAC)

Section 80-IAC of the Income Tax Act, 1961, provides a significant income tax deduction for eligible startups, aiming to support their financial stability during critical growth phases. This provision allows for a 100% deduction of profits and gains derived by an eligible startup for any three consecutive assessment years out of the first ten years from its incorporation.

To qualify for this deduction, a startup must meet several stringent eligibility conditions:

• Business Structure: It must be incorporated either as a private limited company or a Limited Liability Partnership (LLP). This requirement explicitly excludes sole proprietorships and traditional partnership firms from availing this benefit.
• Incorporation Period: The startup should have been incorporated between April 1, 2016, and March 31, 2024, as per the latest extensions.
• Turnover Limit: Its gross receipts must not exceed ₹100 crores in any previous year relevant to the assessment year in which the deduction is sought.
• Recognition and Certification: Crucially, the startup must be recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) and possess a certificate of eligible business from the Inter-Ministerial Board (IMB).
• Nature of Business: The startup must be engaged in innovation, development, or improvement of products, processes, or services, or possess a scalable business model with high potential for employment generation or wealth creation.

While an eBay seller could potentially avail this if they meet all these stringent conditions, particularly by being structured as a company or LLP and securing DPIIT/IMB recognition for innovation or scalability in their e-commerce export model, the strict criteria mean it is not a blanket benefit for all small businesses. Many eBay sellers operating as sole proprietors would be immediately excluded. The requirement for a formal company/LLP structure and the rigorous DPIIT/IMB certification process often lead to low utilization of this section , despite the significant deduction it offers. This provision encourages formalization and innovation within the startup ecosystem, highlighting a government preference for structured, innovative entities.

Other Important points

Leveraging Government Portals and Schemes

To streamline compliance and access benefits, eBay sellers should familiarize themselves with and utilize relevant government portals and schemes:

• ICEGATE Portal: Essential for managing and claiming RoDTEP benefits, including the generation and utilization of e-scrips.
• GST Portal: The primary platform for filing GST returns, claiming input tax credit refunds, and managing other GST-related compliances.
• Udyam Portal: For MSME registration, which is a prerequisite for availing various MSME-specific tax benefits and incentives.
• DGFT Portal: The Directorate General of Foreign Trade (DGFT) website provides comprehensive information on India’s Foreign Trade Policy (FTP), export-import guidance, and details on various duty exemption/remission schemes.

Importance of Business Structure (Sole Proprietorship, LLP, Company)

 The choice of business structure significantly influences an eBay seller’s eligibility for various income tax benefits

Comparison of Key Income Tax Benefits by Business Structure

FAQ