E-commerce and quick commerce under the Budget lens: What regulatory clarity could help the sector in 2026?

The Union Budget 2026 arrives at a pivotal time for the Indian economy, as digital commerce transcends its nascent “startup” phase to play a central role in India’s $5 trillion economic ambition. As the Ministry of Finance prepares the fiscal roadmap for FY 2026-27, the policy narrative is focusing on establishing a stable regulatory foundation for long-term growth while encouraging digital adoption. With the sector expected to drive substantial employment and growth, stakeholders are looking at the Budget not merely for fiscal incentives, but for regulatory clarity that balances ease of doing business with social safeguards and simplified compliance.

This piece examines the key regulatory priorities that could materially shape the e-tail ecosystem in FY27.

A persistent pain point for the sector remains the treatment of Tax Deducted at Source (TDS) under Section 194O. While the reduction of the TDS rate from 1% to 0.1% (effective October 2024) was a welcome relief, particularly for low-margin sellers, ambiguity surrounding the definition of “gross amount” continues to create friction.

Under current CBDT guidelines, TDS is deducted on the gross invoice value, which includes shipping, convenience and platform charges. These components constitute income for the platform, not the seller. Consequently, sellers are taxed on revenue they never realised, creating a cash-flow trap. The challenge is compounded in transactions involving multiple e-commerce operators and high-return sectors like apparel (30-35%). Binding clarification on the scope of “gross amount” and exclusion of platform-specific charges from the computation would significantly reduce cash-flow friction for small players. Further, a standardised mechanism may be introduced to compute TDS on net sales, supported by a mechanism to account for returns and cancellations without complex reconciliation.

The industry continues to seek a definitive resolution to the ambiguity surrounding Foreign Direct Investment (FDI) rules, especially around the inventory-based models, a debate reignited by the operational structures of “dark stores” and the recent case against Myntra by the Enforcement Directorate for alleged FEMA violations (INR 1,654 crore) on circumventing FDI restriction on multi-brand related trading.

Further, one of the most widely supported proposals, also initiated by DGFT, is a policy carve-out to permit inventory-led models for export-only operations. Currently, foreign-funded platforms cannot hold inventory, which hampers their ability to ensure quality and speed for global markets. As per the Global Trade Research Initiative report dated March 2023, allowing such carve-outs for exports could be the catalyst India needs to target $350 billion in e-commerce exports, narrowing the gap with China.

The recent nationwide strike by gig workers, followed by swift government intervention, forced platforms to drop their “10-minute delivery” branding to prioritise safety for a workforce projected to reach 23.5 million by 2030.

Draft rules under the Code on Social Security, 2020, envisage an aggregator contribution towards a gig and platform workers’ social security fund, with turnover-linked levy capped at 1-2%, subject to final notification. However, for platforms with razor-thin margins and high cash burn, a levy on turnover (not profit) could substantially erode gross margins. Budget 2026 presents an opportunity for transitional support, potentially through a dedicated corpus for operationalising the Social Security Board and temporarily subsidising initial insurance costs.

The Open Network for Digital Commerce (ONDC) has successfully democratised retail access. Having completed four years of development, the network is now entering its national scaling phase. As of October 2025, ONDC processed over 326 million orders, averaging nearly 6 lakh daily transactions. ONDC is now being extended to offer various financial services, including unsecured and secured credit, insurance and investment,[2] and there is a promising scope for deeper integration between ONDC and Open Credit Enablement Network.  

ONDC’s first pilot program is focused on small-ticket unsecured individual loans and GST-based invoice loans for small merchants within minutes. While Budget 2024-25 laid the foundation for data-driven MSME lending, ONDC opens a new frontier by generating real-time transaction data. Budget 2026 can enable clearer regulatory pathways for using ONDC sales/ transaction records into existing digital credit frameworks, enabling small online sellers to access formal credit based on actual transaction performance and sales rather than traditional collateral.

As digital commerce moves into a new phase of scale and scrutiny and poses as a major economic contributor, the sector’s foremost ask from Budget 2026 is regulatory certainty. From taxation and credit access to labour protections and investment rules, these will guide investor confidence and operational stability in FY 2026-27. The moment calls for building that clarity into a framework that supports growth, competition, and inclusive progress.

About the authors: Stella Joseph is a Partner, Prakhil Mishra is a Principal Associate and Shubham Bhandari is an Associate at Economic Laws Practice.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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