ITR for Online Sellers: Which Form, What Income and What to Watch

If you sell on Amazon, Flipkart or Meesho as an individual, your profit is business income. For FY 2025-26 (assessment year 2026-27) most small sellers can use presumptive tax under section 44AD: declare at least 6% of sales received through the bank, file ITR-4, and claim the marketplace's 0.1% TDS as credit.

What kind of income is marketplace selling?

You buy or make goods and sell them for a profit. That is business income, taxed under the head "profits and gains of business or profession". It does not matter that the customer never meets you or that the marketplace handles the money. A salaried person who sells on the side has two heads of income, salary and business, in one return.

So the real question is how to work out the profit. The law gives you two routes: the short one (presumptive tax) and the full one (books of account).

How does presumptive tax under section 44AD work?

Presumptive tax means the law presumes your profit as a fixed share of your sales, so you do not have to keep detailed books or get them audited. It exists to spare small businesses that paperwork. Resident individuals, HUFs (Hindu undivided families) and partnership firms other than LLPs can use it.

What about your payouts? Marketplaces settle to your bank account by electronic transfer, so those sales fall in the 6% bucket. The common reading is that this holds for cash-on-delivery orders too, because the test is how the money reaches you, and it reaches you from the marketplace through the bank.

One caution. The 6% is a floor. If you actually earned more, declare the higher figure. The return now asks presumptive filers for bank balances and investments, and a declared profit far below what your bank account suggests invites questions.

When do you need books and ITR-3?

ITR-4 is the short form for presumptive income. You move to books of account and ITR-3 when any of these is true:

• Your turnover crosses the Rs 2 crore or Rs 3 crore limit.
• Your real margin is below 6%, or you made a loss, and you want to declare the real figure.
• You fall outside ITR-4: total income above Rs 50 lakh, any short-term capital gain, a directorship, unlisted shares or foreign assets. The full list is in which ITR form to file.

Leaving 44AD has a price. The Income Tax Department's own guide says that once you opt in, you are expected to stay in for the next five years. If you step out, the scheme is closed to you for five assessment years, and you must keep books and get a tax audit if your total income is above the amount not chargeable to tax (Rs 4,00,000 under the new regime). So do not switch in and out year by year.

Which turnover do you report: gross sales or payouts?

This is where most sellers slip. You will see three different numbers for the same year.

Whether turnover includes the GST you collected depends on how you account for it. The usual practice, following ICAI guidance, is to leave GST out when you record it separately as a liability. Whichever way you choose, be consistent.

Before you file, write a three-line reconciliation: turnover in your ITR, taxable value in your GST returns, and the section 194-O amount in Form 26AS. The 26AS figure can be higher because the operator deducts on the gross amount when it credits you, and later returns may not be netted off. A difference is fine. An unexplained difference is the problem.

How do you use the section 194-O TDS?

Under section 194-O the marketplace deducts income tax at 0.1% of the gross amount of your sales when it credits or pays you. An individual or HUF whose gross sales through that operator stay within Rs 5 lakh in the year, and who has given PAN or Aadhaar, is outside this deduction.

The deducted amount shows in Form 26AS against your PAN. Enter it in the TDS schedule of your return and it reduces your tax, rupee for rupee. If your tax is nil, it comes back as a refund. Do not confuse it with the GST deduction on the same settlement, explained in TCS on e-commerce sellers.

What about advance tax?

Advance tax applies when your tax for the year, after TDS, is Rs 10,000 or more. Most taxpayers pay it in four instalments. A seller on section 44AD gets a simpler rule: pay the whole amount by 15 March of the financial year. Miss it and interest under section 234C is added. For FY 2025-26 that date was 15 March 2026.

A worked example

Meera sells bedsheets on Amazon and Meesho. She has no other income.

• Sales less returns, before GST: Rs 42,00,000.
• Marketplace fees, shipping and ads: Rs 11,00,000. Payouts to her bank: about Rs 31,00,000.
• Turnover for section 44AD: Rs 42,00,000, not Rs 31,00,000.
• Presumptive income at 6%: Rs 2,52,000.
• TDS under section 194-O at 0.1%: about Rs 4,200, visible in Form 26AS.

Her total income of Rs 2,52,000 is below Rs 4,00,000, so her tax under the new regime is nil. She files ITR-4, claims the Rs 4,200, and gets it back as a refund. If she had reported payouts as turnover, her return would show Rs 31,00,000 against Rs 42,00,000 in her GST returns and 26AS. That gap of Rs 11,00,000 is what a notice is built on.

The mismatch that triggers notices

The department already holds two outside records of your sales: the operator's TDS statement, and your own GST data, which the e-filing portal says is part of the AIS. Your ITR is compared with both. The usual mistakes are:

• Reporting bank payouts as turnover.
• Leaving out one marketplace, or a second GSTIN.
• Not claiming the TDS, or claiming more than Form 26AS shows.
• Skipping the return because "tax is nil". The refund is lost and the 26AS entry stays unanswered.

What to do next: download Form 26AS and the AIS, total your GSTR-1 for the twelve months, and settle the three numbers before you open the return.

Have you missed the date?

For a non-audit business the due date for FY 2025-26 was 31 August 2026. You can still file a belated return until 31 December 2026, with a late fee. The steps are in belated return filing.

Should you do this yourself?

One marketplace, clean reports and a margin above 6%: you can file ITR-4 yourself. Pay for help when you have several marketplaces, a margin below 6%, a loss, or figures in 26AS that you cannot explain.

Frequently asked questions

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