Govt doubles E-Commerce tax in budget FY26

June 10, 2025 (MLN): In a significant move to capture the growing digital economy, the federal government has expanded the e-commerce tax framework in the Budget 2025–26 by increasing the withholding sales tax rate from 1% to 2%. 

Currently, online marketplaces are required to withhold 1% sales tax on local supplies made by non-active taxpayer vendors.

However, this does not fully capture the expanding e-commerce sector, particularly businesses using websites and apps for online sales to consumers.

To address this gap, the withholding tax scope has been expanded to cover transactions settled via online payment or cash on delivery (CoD).

The definition of ‘e-commerce’ has been formally introduced, while the term ‘online marketplace’ has been redefined to include all taxable activities.

Under the proposed regime substituting S. No. 8 of the Eleventh Schedule payment intermediaries such as banks, financial institutions, exchange companies, and payment gateways will collect sales tax on digital payments, while courier companies will collect tax for CoD transactions.

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