Selling Online in India: Proprietorship or Private Limited (GST and TCS)?

You want to sell on a marketplace, or on your own website through a platform. You have a product, maybe a few listings, and one question: should you start as a proprietor, or set up a private limited company first?

The honest answer is that the tax rules for the marketplace do not change much with the structure you pick. Most of the pain people feel (a GST number they did not expect to need, money held back by the platform) hits both structures. A few points do differ, and this article separates the two. It covers GST registration, the GST tax collected at source (TCS) by the platform, and the income-tax deduction by the platform.

Who is the "operator" and who is the "supplier"?

Two roles matter.

• The electronic commerce operator is the platform. For income tax, the Income-tax Act, 2025 defines an "e-commerce operator" as a person who owns, operates or manages a digital or electronic facility or platform for electronic commerce (s.402(13), Income-tax Act, 2025).
• You are the supplier under GST, and the e-commerce participant under income tax: a person resident in India selling goods or providing services, or both, through such a platform (s.402(14), Income-tax Act, 2025).

Everything below follows from those two roles.

Step 1: Do you need GST registration at all?

The default rule is a turnover test. A supplier must register if aggregate turnover in a financial year exceeds twenty lakh rupees (ten lakh rupees if the taxable supplies are made from a special category State) (s.22(1) and its proviso, CGST Act, 2017). "Aggregate turnover" includes all supplies made on your own account or on behalf of your principals (Explanation (i) to s.22, CGST Act, 2017).

A small seller might stop reading there. Do not. Section 24 says that, notwithstanding s.22(1), certain persons must register. Two clauses matter for online sellers:

• Persons who make an inter-State taxable supply must be registered (s.24(i), CGST Act, 2017).
• Persons who supply goods or services, other than the supplies in s.9(5), through an electronic commerce operator who is required to collect tax at source under s.52 must be registered (s.24(ix), CGST Act, 2017).

So if you sell goods through a marketplace that collects TCS, the turnover threshold does not protect you. Section 24(i) separately requires registration for inter-State taxable supplies, and some small suppliers are exempted from that by separate notification. Check the GST portal for the exemption that fits your case before you rely on any threshold.

The exemption for small service suppliers, and its limit

The Central Government can notify categories of persons who are exempt from registration (s.23(2), CGST Act, 2017). Notification No. 65/2017 – Central Tax, dated 15 November 2017, uses that power. It exempts persons making supplies of services, other than the s.9(5) supplies, through an e-commerce operator required to collect tax at source under s.52, if their aggregate turnover on an all-India basis does not exceed twenty lakh rupees in a financial year. For special category States, other than Jammu and Kashmir, the aggregate value of such supplies must not exceed ten lakh rupees (Notification No. 65/2017 – Central Tax).

Read the words carefully. The notification speaks of supplies of services. It does not mention goods. A seller of physical products cannot lean on it. Before you rely on it, check the GST portal for any later notification that changes it.

How to apply, and by when

A person liable to register under s.22 or s.24 must apply in every State or Union territory where so liable, within thirty days from the date on which he becomes liable (s.25(1), CGST Act, 2017). A Permanent Account Number issued under the Income-tax Act, 1961 is needed to be eligible for registration (s.25(6), CGST Act, 2017). If you fail to register when liable, the proper officer may proceed to register you (s.25(8), CGST Act, 2017).

Step 2: What the platform does under GST (TCS)

Under s.52(1) of the CGST Act, 2017, every electronic commerce operator that is not an agent must collect an amount calculated at a rate not exceeding one per cent, as notified by the Government on the Council's recommendation, of the net value of taxable supplies made through it by other suppliers, where the platform collects the consideration.

"Net value of taxable supplies" is the aggregate value of taxable supplies (other than s.9(5) services) made during the month by all registered persons through the operator, reduced by the value of supplies returned to the suppliers in that month (Explanation to s.52(1), CGST Act, 2017).

The actual rate currently notified is not something this article quotes. Check the current rate on the GST portal before you plan your cash flow.

What this means for you as a seller:

• The platform pays the amount to the Government within ten days after the end of the month in which it was collected (s.52(3)).
• The platform files a monthly statement of your outward supplies and returns, and the amount collected, within ten days after month-end (s.52(4)), and an annual statement before 31 December following the financial year (s.52(5)).
• You claim credit of the amount in your electronic cash ledger, based on what the platform reported (s.52(7)). It is a credit towards your GST, not an extra tax.
• The platform's figures are matched against what you report in your return under s.37. Where the platform reported a higher value of outward supplies than you did and the mismatch is not fixed in time, the difference is added to your output tax liability for the following month, and you pay the tax with interest at the s.50(1) rate (s.52(9), (10) and (11)).

All references in this section are to the CGST Act, 2017.

Practical reading: keep your sales records in step with the platform's statement every month. TCS is a cash-flow event first. The tax is collected from your settlement and sits in your cash ledger until you use it.

Step 3: Income tax - the platform deducts as well

GST is not the only deduction. The Income-tax Act, 2025 applies from tax year 2026-27 (the year starting 1 April 2026). Under s.393(1) of that Act, when a payer specified in the Table pays a resident a sum of the nature in the Table, it must deduct income-tax. Serial 8(v) of that Table covers any sum on account of sale of goods or provision of services by an e-commerce participant, facilitated by an e-commerce operator through its digital or electronic facility or platform. The payer is the e-commerce operator. The rate is 0.1% of the gross amount of such sale or services, with a threshold limit of nil (s.393(1), Table: Sl. No. 8(v), Income-tax Act, 2025).

Three points from the notes to that serial number:

• Payments you receive directly from a customer for a sale the platform facilitated are treated as paid by the platform to you, and added to the gross amount for this deduction (Note 3(b)).
• The platform is deemed to be the person responsible for paying the participant (Note 3(c)).
• Once tax has been deducted on a transaction under this serial number, tax is not deducted again on that transaction under any other provision of the Chapter (Note 3(d)). That rule does not cover amounts the platform receives for advertising or other services not connected with your sale (Note 3(e)).

(Notes 3(b) to 3(e) to s.393(1), Table: Sl. No. 8(v), Income-tax Act, 2025.)

For earlier tax years, the same deduction sat in s.194-O of the Income-tax Act, 1961. The mapping table between the two Acts links s.194-O to s.393 of the 2025 Act. If you are looking at a return for an earlier year, read the text of s.194-O as it stood for that year.

Where the structure makes a real difference

Here is the point where proprietorship and company part ways, on the law above.

1. The small-seller income-tax exemption belongs to individuals and HUFs. There is a sub-limit under s.393(4), Table Sl. No. 11, Income-tax Act, 2025. No tax is to be deducted where the amount credited or paid to the participant in the tax year is to an individual or a Hindu undivided family, the gross amount of sales or services in the tax year does not exceed ₹5,00,000, and the participant has furnished the Permanent Account Number or Aadhaar number to the operator. A proprietorship is the individual. A company is not an individual or an HUF, so this exemption is not open to it. If you expect to sell less than ₹5 lakh in the year and you share your PAN or Aadhaar with the platform, the proprietor route avoids the 0.1% deduction. A company cannot.

2. GST registration is tied to a PAN. A person must hold a Permanent Account Number issued under the Income-tax Act, 1961 to be eligible for registration (s.25(6), CGST Act, 2017). A company has its own PAN, separate from the proprietor's. So if you move from one structure to the other, expect to register afresh in the new name and have a CA confirm the changeover steps.

3. The GST rules on registration do not turn on the structure. Both the proprietor and the company face s.24(ix) if they sell goods on a marketplace that collects TCS. Both face s.52 TCS, the credit in the cash ledger, and the matching process.

4. A company is a separate legal form. A private company is one with the prescribed minimum paid-up share capital and articles that restrict the right to transfer its shares and, except for a One Person Company, limit members to two hundred (s.2(68), Companies Act, 2013). That is the structure you must set up before you start trading in its name. We do not cover incorporation fees or costs here, because they depend on the State and the capital.

If you already run as a proprietor and want to change, see our separate guide on converting a proprietorship into a private limited company.

What not to do

• Do not assume the ₹20 lakh turnover limit protects a goods seller on a marketplace. It does not (s.24(ix), s.22(1), CGST Act, 2017).
• Do not rely on Notification No. 65/2017 – Central Tax for goods. It speaks of services.
• Do not ignore a mismatch between the platform's statement and your own return. It can be added to your output tax with interest (s.52(10) and (11), CGST Act, 2017).
• Do not give the platform a PAN you do not hold in your own name. The ₹5 lakh income-tax exemption needs a PAN or Aadhaar furnished by the participant (s.393(4), Table Sl. No. 11, Income-tax Act, 2025).

What to do now

Have a CA review your facts before you act or file.

FAQs

1. I sell handmade goods from home and turnover is under ₹20 lakh. Do I need GST?
If you sell goods through a marketplace that collects TCS under s.52, yes. Section 24(ix) of the CGST Act, 2017 makes registration compulsory for persons supplying through such an operator. The small-supplier exemption in Notification No. 65/2017 – Central Tax covers services only.

2. Is TCS an extra tax on me?
No. The platform collects an amount not exceeding one per cent of the net value of taxable supplies, pays it to the Government, and you claim credit in your electronic cash ledger (s.52(1), (3) and (7), CGST Act, 2017).

3. What is the deduction by the platform under the Income-tax Act?
For tax year 2026-27 onwards, 0.1% of the gross amount of the sale or services, with a nil threshold (s.393(1), Table Sl. No. 8(v), Income-tax Act, 2025). The earlier counterpart was s.194-O of the 1961 Act.

4. Does a company get the ₹5 lakh exemption?
No. That exemption is for an individual or a Hindu undivided family with gross sales not above ₹5,00,000 who has given a PAN or Aadhaar (s.393(4), Table Sl. No. 11, Income-tax Act, 2025).

5. If I register as a proprietor now and form a company later, does my GST number move?
The company holds its own PAN, and GST registration needs a PAN (s.25(6), CGST Act, 2017). Plan for a fresh registration and have a CA advise on the changeover.

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See Also

• How to Check GST Number Online
• Converting our LLP into a private limited company
• GST registration for a new company: who must register, by when, and how