E-commerce is where India’s FDI policy draws its sharpest line: 100% foreign investment in a marketplace, zero in inventory-based retail – a distinction that shapes how every foreign brand and platform structures its India entry. And the line just moved: Press Note 3 of 2026 (issued 23 July 2026) opens FDI in inventory e-commerce built solely for exports – the “Make in India for the world” D2C model. Here is the current map: the marketplace conditions, the export carve-out, the consumer-protection layer, and the five ways foreign brands actually enter.
The FDI map
| Model | FDI | Conditions |
|---|---|---|
| Marketplace (platform connecting buyers and third-party sellers) | 100% automatic | The Press Note 2 (2018) conditions below |
| Inventory-based B2C (own stock, domestic sales) | Prohibited | – |
| Inventory for exports only – new | Permitted (PN3/2026) | No domestic sales; FTP + FEMA export rules; awaiting NDI notification |
| B2B / wholesale e-commerce | 100% automatic | Wholesale conditions (trade registers, group-sales limits) |
| Food products made in India (incl. online retail) | 100% government route | India-produced food only |
| Single-brand retail (with online sales) | 100% automatic | Beyond 51%: 30% India sourcing (5-year average); online-first allowed with stores within 2 years |
The marketplace conditions (Press Note 2 of 2018 – still the law)
- No equity in sellers: the marketplace entity and its group companies cannot hold equity in sellers on the platform, nor control their inventory;
- The 25% test: a vendor sourcing more than 25% of its purchases from the marketplace group is deemed inventory control – the structure fails;
- Fair platform: logistics, warehousing, advertising and financing must be offered to all sellers on non-discriminatory, arm’s-length terms;
- No exclusivity: no mandating that a seller list only on your platform;
- No price influence: directly or through group cashbacks;
- Annual RBI certificate: statutory-auditor compliance certificate by 30 September every year.
The consumer-protection and tax layer
| Layer | Obligation |
|---|---|
| E-Commerce Rules 2020 | Registration disclosures, grievance officer, country-of-origin labelling; the harsher 2021 draft amendments (flash-sale ban, fall-back liability) were never notified |
| Dark patterns | CCPA 2023 guidelines name 13 prohibited patterns; the June 2025 advisory demanded platform self-audits and declarations – 18+ major platforms have filed theirs |
| GST – TCS | Operator collects TCS at 0.5% (cut from 1% in July 2024) on seller supplies; monthly GSTR-8; operator liable directly for notified services (s.9(5): restaurants, transport, hotels) |
| Income tax | s.194-O TDS at 0.1% on gross seller sales (cut from 1% from October 2024) |
| DPDP | Platforms with 2 crore+ users: 3-year data-erasure duty from May 2027 – see the IT/SaaS compliance map |
How foreign D2C brands actually enter – the five structures
| # | Structure | When it fits |
|---|---|---|
| 1 | Cross-border listing – sell into India via marketplace global stores, courier imports, no Indian entity | Testing demand; duty-paid economics must work |
| 2 | B2B wholesale WOS – your subsidiary imports and wholesales to independent Indian sellers who retail online | The classic scalable model – watch the 25% and group-equity tests if you also run a platform |
| 3 | Single-brand retail WOS – own stores + own website | Brand control; mind the 30% sourcing norm above 51% FDI |
| 4 | Licence/franchise to an Indian operator – royalty out under the automatic route | Asset-light; see the royalty tax rules |
| 5 | Export-inventory entity (PN3/2026) – foreign-funded, India-made, world-sold | Manufacturing-linked D2C once the FEMA notification lands |
Structuring an India commerce entry?
We design the entity chain against the marketplace conditions, the sourcing norms and the downstream rules – then run the FDI filings and GST registrations.
Talk to My Cloud AccountantFrequently asked questions
Can a foreign company sell directly to Indian consumers online?
Not from an Indian inventory-owning entity – inventory-based domestic e-commerce is prohibited for FDI. The routes are: cross-border sales from abroad, a single-brand retail entity, wholesaling to independent sellers, or licensing an Indian operator. The new 2026 carve-out permits foreign-funded inventory only for exports.
What is the 25% rule in marketplace e-commerce?
A seller purchasing more than 25% of its inventory from the marketplace entity or its group companies is deemed to have its inventory controlled by the marketplace – converting the model to prohibited inventory e-commerce. It is the test that forces genuine seller independence.
What is Press Note 3 of 2026?
The July 2026 press note permitting FDI in Indian entities that hold inventory exclusively for export – enabling foreign-funded export-focused D2C and e-commerce, with no domestic sales, subject to FTP and FEMA export compliance. It takes effect when the matching FEMA amendment is notified.
What taxes does a marketplace operator collect?
GST TCS at 0.5% on seller supplies (with monthly GSTR-8), direct GST liability for notified services like restaurant delivery, and income-tax TDS at 0.1% on gross seller sales under section 194-O.
Based on the Consolidated FDI Policy (para 5.2.15), Press Note 2 of 2018, Press Note 3 of 2026, the Consumer Protection (E-Commerce) Rules 2020, CCPA dark-patterns guidelines and current GST/TDS notifications. Last reviewed: July 2026.