E-Commerce Sector in India: FDI Rules, Government Initiatives & Opportunities for Foreign Companies

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The E-Commerce Sector in India has developed rapidly with the expansion of digital payments, internet access, logistics networks, online marketplaces and technology-led consumer businesses.

For foreign companies, India offers opportunities across online marketplaces, B2B commerce, technology platforms, logistics, digital services, consumer brands and related support services.

However, entering India’s e-commerce market requires careful planning because the regulatory framework differs depending on whether the foreign investor proposes to operate a marketplace, inventory-led business, B2B platform, single-brand retail business or another digital commerce model.

Foreign companies considering India should therefore evaluate their proposed business model, foreign direct investment (FDI) eligibility, entity structure, taxation, consumer protection, data protection and product-specific regulatory requirements before commencing operations.

Businesses planning a broader India expansion strategy can also review our India Market Entry Consulting Services and Business Setup in India guides.

Why India’s E-Commerce Sector Is Important for Foreign Companies

India’s digital commerce ecosystem extends far beyond conventional online retail.

It now includes:

Online marketplaces
B2B commerce platforms
Direct-to-consumer brands
Digital services
Food and grocery platforms
Logistics and fulfilment
Fintech-enabled commerce
Software and technology platforms
Online travel
Healthcare platforms
Educational services
Government procurement
Open-network digital commerce

Foreign businesses can participate in this ecosystem through different structures depending upon their commercial objectives and the applicable FDI framework.

Some companies initially test the market by appointing an Indian distributor through a model such as our Distributor Appointment Services in India.

Others establish an Indian company through a Wholly Owned Subsidiary in India and build their local digital, sales, technology or support operations.

Choosing the appropriate structure is therefore an important first step.

FDI Rules for E-Commerce in India

Foreign investment in India’s e-commerce sector is governed principally by India’s FDI Policy and FEMA framework.

The Department for Promotion of Industry and Internal Trade – Foreign Direct Investment Policy sets out the applicable foreign-investment framework.

The treatment differs significantly depending upon the business model.

E-Commerce Model	FDI Position
Marketplace model of e-commerce	100% FDI permitted under Automatic Route, subject to prescribed conditions
Inventory-based e-commerce model	FDI not permitted under the general e-commerce marketplace framework
B2B e-commerce	100% FDI generally permitted under Automatic Route, subject to applicable conditions
Manufacturer selling products manufactured in India	Permitted subject to applicable FDI rules
Single Brand Retail Trading	Up to 100% FDI under Automatic Route, subject to prescribed conditions
Multi Brand Retail Trading	Separate restrictive FDI framework applies; e-commerce retail by companies with FDI in MBRT is restricted

The distinction between marketplace and inventory-based models is therefore critical for foreign investors.

Marketplace Model of E-Commerce

A marketplace model essentially provides a digital or electronic platform that facilitates transactions between buyers and independent sellers.

Under India’s FDI framework, 100% foreign direct investment is permitted under the Automatic Route in the marketplace model of e-commerce, subject to the applicable conditions.

A marketplace may generally provide support services to sellers, including:

Warehousing
Logistics
Order fulfilment
Call-centre support
Payment collection
Marketing
Technology infrastructure
Other related services

However, the marketplace must comply with important restrictions relating to inventory, vendors and pricing.

The detailed framework can be reviewed in the official DPIIT Consolidated FDI Policy.

Inventory-Based Model of E-Commerce

An inventory-based model broadly refers to an e-commerce business where the e-commerce entity owns the inventory of goods or services and sells those goods or services directly to consumers.

Under the current FDI policy framework, foreign direct investment is not permitted in an inventory-based model of e-commerce.

This is one of the most important issues for foreign businesses planning an Indian e-commerce operation.

A proposed model should therefore be examined carefully before:

Incorporating the Indian company
Making foreign investment
Entering contracts with sellers
Creating warehousing arrangements
Designing seller relationships
Determining pricing policies
Launching the platform

An incorrect structure can create significant FDI and FEMA compliance issues.

Foreign businesses that need assistance in choosing and incorporating the appropriate Indian entity can review our Foreign Company Registration in India services.

Key Conditions for a Foreign-Owned E-Commerce Marketplace

The FDI framework imposes several important conditions on marketplace entities with foreign investment.

Among other requirements:

The marketplace should not own or control inventory being sold through its platform.
An arrangement that results in control over inventory may cause the model to be regarded as inventory-based.
Sellers in which the marketplace entity or its group companies have specified equity participation are subject to restrictions on selling through that marketplace.
Marketplace entities should not directly or indirectly influence the sale price of goods or services.
Services offered to vendors should be provided on an arm’s-length, fair and non-discriminatory basis.
Marketplace entities should not require sellers to sell products exclusively through their platform.
Seller information should be appropriately displayed to customers.
Applicable payment regulations must be complied with.
The marketplace entity with FDI is required to obtain the prescribed statutory auditor report confirming compliance with the e-commerce FDI guidelines.

Foreign investors can review the detailed rules in DPIIT Press Note No. 2 (2018 Series) – FDI Policy on E-Commerce.

Can a Foreign Manufacturer Sell Online in India?

Foreign investors should distinguish a marketplace business from a manufacturing business.

Under India’s FDI policy, a manufacturer is permitted, subject to applicable conditions, to sell products manufactured in India through wholesale and/or retail channels, including e-commerce.

Accordingly, a foreign group considering manufacturing and online sales in India should not automatically assume that the restrictions applicable to a foreign-funded marketplace apply in exactly the same manner to its manufacturing operations.

The precise structure should be evaluated based on:

Where the products are manufactured
Ownership of the brand
Proposed Indian entity
Foreign shareholding
Whether the company is a manufacturer, marketplace or trader
Whether sales are B2B or B2C
Applicable product regulations

Businesses considering local manufacturing may establish a Wholly Owned Subsidiary in India after reviewing the applicable FDI and sector-specific conditions.

Single Brand Retail and E-Commerce

Single Brand Retail Trading has a separate FDI framework.

Up to 100% foreign investment is permitted under the Automatic Route in Single Brand Retail Trading, subject to prescribed conditions including requirements relating to the brand and, in specified cases, local sourcing.

An eligible Single Brand Retail Trading entity may also undertake retail trading through e-commerce subject to the applicable policy conditions.

Foreign brands planning direct online sales in India should therefore determine whether their proposed model falls within:

Marketplace e-commerce
Single Brand Retail Trading
Manufacturing
Wholesale/B2B trading
Another permitted structure

This classification can materially affect the FDI position.

B2B E-Commerce in India

India’s FDI policy is comparatively liberal for B2B e-commerce.

Foreign investment is generally permitted under the Automatic Route for eligible B2B e-commerce activities, subject to applicable wholesale trading and other regulatory conditions.

This can create opportunities for foreign businesses operating:

Industrial marketplaces
Wholesale platforms
Enterprise procurement platforms
SaaS-enabled commerce platforms
Supply-chain platforms
B2B distribution networks
Industrial product platforms

The nature of customers and transactions should nevertheless be properly documented so that the business model is consistent with the applicable B2B framework.

ONDC and India’s Open Digital Commerce Ecosystem

A major development in India’s digital-commerce landscape has been the creation of the Open Network for Digital Commerce (ONDC).

ONDC is designed as an interoperable network rather than a conventional closed marketplace.

Its objective is to increase digital-commerce participation and make buyers and sellers discoverable across different network applications.

The network can potentially support multiple sectors including:

Retail
Food
Mobility
Logistics
Travel
Services
B2B transactions

Foreign companies evaluating India’s digital market should therefore consider not only conventional marketplaces but also emerging open-network commerce opportunities.

More information is available from the official Open Network for Digital Commerce website.

Government e-Marketplace – GeM

Another important component of India’s digital commerce infrastructure is the Government e-Marketplace (GeM).

GeM facilitates digital procurement by Government departments, public-sector organisations and other eligible government buyers.

The platform has grown considerably since its establishment.

By August 2026, GeM had facilitated cumulative Gross Merchandise Value exceeding ₹20 lakh crore through more than 3.78 crore orders.

This demonstrates the scale to which digital procurement has become integrated into India’s public purchasing ecosystem.

Companies interested in supplying eligible products or services to Indian government organisations should separately evaluate the registration, localisation, procurement and eligibility requirements applicable to GeM.

Current information may be reviewed through the Government e-Marketplace and the Government’s Press Information Bureau update on GeM.

Consumer Protection Rules for E-Commerce Businesses

E-commerce entities operating in India must also consider the Consumer Protection (E-Commerce) Rules, 2020, as amended.

These rules apply broadly to goods and services bought or sold over digital or electronic networks and include marketplace and inventory models.

Importantly, the framework can also apply to an e-commerce entity that is not established in India but systematically offers goods or services to consumers in India.

Depending upon the business model, compliance areas may include:

Consumer disclosures
Seller information
Grievance redressal
Refund and return policies
Pricing transparency
Prohibition of unfair trade practices
Product information
Consumer complaints
Marketplace disclosures

Foreign companies targeting Indian consumers should therefore undertake a consumer-protection review before launching their platform.

The applicable regulations can be accessed from the Department of Consumer Affairs – Consumer Protection Rules.

Data Protection and E-Commerce

E-commerce companies collect significant amounts of digital personal data relating to:

Customers
Employees
Sellers
Suppliers
Payment transactions
Addresses
Marketing preferences
Website and application usage

India has introduced a new data-protection framework through the Digital Personal Data Protection Act, 2023 and Digital Personal Data Protection Rules, 2025.

E-commerce businesses processing digital personal data should evaluate applicable requirements relating to areas such as:

Notice and consent
Purpose of data processing
Data security
Individual rights
Data breaches
Data retention
Processing of children’s data
Data-fiduciary obligations

Foreign companies with global digital platforms should therefore include Indian data-protection requirements in their India launch plan.

The current rules and notifications are available on the Ministry of Electronics and Information Technology – DPDP Rules 2025 page.

Tax Considerations for Foreign E-Commerce Companies

Taxation is another important component of an India e-commerce strategy.

Depending upon the business model, foreign businesses may need to examine:

Corporate income tax
Permanent establishment exposure
GST
Tax collection requirements applicable to e-commerce operators
Customs duty on imported products
Withholding tax
Transfer pricing
Royalty or technology payments
Intercompany service charges
Tax-treaty provisions

Where a foreign company establishes an Indian subsidiary, transactions between the Indian entity and foreign group companies may also fall within India’s transfer pricing provisions.

Businesses can review our Tax & Regulatory Advisory Services in India for assistance with Indian tax and regulatory matters.

Important Update – 2% Equalisation Levy on E-Commerce Has Been Discontinued

Older articles on Indian e-commerce frequently refer to a 2% Equalisation Levy on e-commerce supply or services provided by non-resident e-commerce operators.

This position has changed.

The 2% Equalisation Levy does not apply to consideration received or receivable for e-commerce supply or services made, provided or facilitated on or after 1 August 2024.

Foreign businesses should therefore not rely on older material that continues to present this 2% levy as a current tax.

The updated statutory position can be reviewed on the Income Tax Department – Section 165A.

Other Indian income-tax, permanent establishment, withholding and transfer pricing provisions may nevertheless remain relevant depending upon the business model.

GST Considerations for E-Commerce

GST implications vary depending upon whether the business is:

An e-commerce operator
A marketplace
A seller
A foreign service provider
An Indian subsidiary
An importer
A B2B platform

Depending upon the transaction, relevant issues may include:

GST registration
Place of supply
Tax collection provisions applicable to eligible e-commerce operators
Input tax credit
Interstate supplies
Import of goods or services
Invoicing
Return filing

The GST model should therefore be reviewed before the platform becomes operational.

Import, Product and Licensing Requirements

A foreign business selling products into India may require additional regulatory approvals depending upon the nature of the product.

These can include:

Importer Exporter Code
Customs registration
BIS certification
FSSAI registration
Legal Metrology compliance
Medical device approvals
Cosmetics regulations
Electronics approvals
Telecom approvals
Packaging and labelling requirements
Trademark registration
Other sector-specific licences

Accordingly, foreign businesses should not treat company incorporation or marketplace registration as the only regulatory requirement.

Our Business Registrations & Licences in India practice can assist businesses in identifying the registrations applicable to their proposed activities.

How Can a Foreign E-Commerce Company Enter India?

There is no single entry structure suitable for every e-commerce business.

The appropriate route depends upon what the foreign company wants to do in India.

Business Objective	Possible Approach
Test demand without establishing an entity	Distributor/importer model
Operate a foreign-funded marketplace	Indian subsidiary structured within FDI marketplace rules
Establish long-term Indian operations	Wholly Owned Subsidiary
Enter with an Indian strategic partner	Joint Venture
Conduct B2B trading	Appropriate Indian entity under wholesale/B2B framework
Manufacture products and sell online	Manufacturing subsidiary, subject to applicable FDI rules
Operate single-brand retail	Single Brand Retail structure subject to FDI conditions

Foreign companies should determine the model before incorporating the entity and remitting foreign capital.

For an overview of available structures, see our guide on Business Setup in India.

Distributor Model vs Establishing an E-Commerce Company in India

Not every foreign brand needs to establish an Indian e-commerce company immediately.

A foreign company may initially appoint an importer or distributor who purchases the products and sells them through Indian online and offline channels.

This may be suitable where the foreign company wants to:

Test the Indian market
Limit initial investment
Understand pricing
Assess customer demand
Avoid immediate operational setup
Evaluate potential before committing significant capital

Our Distributor Appointment Services in India can assist overseas businesses evaluating this route.

Once sales reach an appropriate scale, the company may consider establishing its own Wholly Owned Subsidiary in India.

Wholly Owned Subsidiary for E-Commerce Operations

A wholly owned subsidiary can provide foreign companies with greater control over their Indian operations.

Depending upon the permitted activities, an Indian subsidiary may be used for:

Technology operations
Platform development
Marketplace activities
B2B business
Sales and marketing
Customer support
Local employees
Warehousing and logistics coordination
Manufacturing
Other permitted commercial activities

However, establishing an Indian subsidiary does not override the FDI restrictions applicable to the underlying business activity.

The proposed model should therefore be reviewed first and the company objects, capital structure and operating arrangements designed accordingly.

Foreign businesses may review our detailed Wholly Owned Subsidiary Registration in India guide.

Joint Venture as an Alternative

Some foreign businesses prefer entering India with a local partner.

A joint venture can potentially provide:

Local market knowledge
Distribution network
Existing customer relationships
Regulatory experience
Manufacturing capability
Procurement network
Faster commercial access

However, the shareholders’ rights, management control, technology ownership, intellectual property, funding, transfer pricing and exit mechanism should be clearly documented.

Foreign companies considering this approach can review our Joint Venture Registration in India services.

Key Compliance Checklist for Foreign E-Commerce Companies

Before launching an e-commerce business in India, a foreign company should review:

Proposed business model
Marketplace vs inventory classification
B2B vs B2C activities
Applicable FDI cap
Automatic or Government Route
Foreign-investor and beneficial-ownership requirements
Indian entity structure
FEMA compliance
Consumer Protection (E-Commerce) Rules
Data-protection requirements
GST
Income tax
Transfer pricing
Customs and imports
Product certifications
Packaging and labelling
Payment arrangements
Intellectual property
Seller agreements
Customer terms and privacy policies

Addressing these matters before launch can substantially reduce the risk of regulatory restructuring later.

Opportunities for Foreign Companies in India’s Digital Commerce Ecosystem

India’s e-commerce opportunity is not limited to establishing another consumer marketplace.

Foreign businesses can explore opportunities in areas such as:

B2B commerce
Industrial marketplaces
Supply-chain technology
Logistics
Warehousing
SaaS platforms
Artificial intelligence
Payment technology
Digital marketing
Consumer brands
Health technology
Education technology
Travel platforms
Retail technology
Cross-border commerce
Manufacturing-linked e-commerce
Open-network digital commerce

The appropriate India market-entry strategy should be selected according to the company’s product, customer profile, investment horizon and desired level of control.

How EzyBiz India Can Assist

EzyBiz India Consulting LLP assists foreign businesses in planning and implementing their India market-entry strategy.

For e-commerce and digital businesses, our assistance may include:

India market-entry strategy
Business-model evaluation
FDI advisory
FEMA advisory
Entity-structure selection
Wholly Owned Subsidiary incorporation
Joint Venture structuring
Company registration
Foreign-investment reporting
Tax structuring
GST advisory
Transfer pricing
Regulatory registrations
Accounting and payroll
Corporate compliance
Ongoing business support

Foreign companies can begin with our India Market Entry Consulting Services or explore our India Market Entry Services by Country.

Frequently Asked Questions

Is 100% FDI allowed in e-commerce in India?

100% FDI under the Automatic Route is permitted in the marketplace model of e-commerce, subject to applicable conditions.

However, FDI is not permitted under the general FDI e-commerce framework in the inventory-based model.

What is the difference between marketplace and inventory-based e-commerce?

A marketplace essentially provides an electronic platform connecting independent buyers and sellers.

An inventory-based model involves the e-commerce entity owning the inventory of goods or services and selling them directly to consumers.

This distinction is extremely important for foreign-invested e-commerce businesses.

Can a foreign company launch an online marketplace in India?

Yes, subject to compliance with India’s FDI, FEMA, consumer protection, tax, data-protection and other applicable regulations.

The ownership and operating structure should be designed before foreign investment is made.

Can a foreign-owned e-commerce marketplace own inventory?

The FDI marketplace framework does not permit the marketplace entity to own or exercise prohibited control over inventory intended for sale through the platform.

Doing so may cause the business to be regarded as an inventory-based model.

Can a foreign manufacturer sell its products online in India?

India’s FDI policy permits manufacturers, subject to applicable conditions, to sell products manufactured in India through wholesale and/or retail channels, including e-commerce.

The exact structure should nevertheless be reviewed based on the product, manufacturing arrangements and foreign ownership.

Can a foreign brand sell directly to Indian consumers online?

Possibly, but the regulatory treatment depends upon the model.

Single-brand retail, manufacturing, marketplace activity and cross-border sales may have different FDI, customs and tax consequences.

Professional review is advisable before launching direct B2C sales.

What is ONDC?

ONDC stands for Open Network for Digital Commerce.

It is an open, interoperable digital commerce network designed to enable buyers and sellers to transact across participating applications rather than requiring both parties to use the same closed marketplace.

Are Consumer Protection Rules applicable to foreign e-commerce companies?

The Consumer Protection (E-Commerce) Rules can apply to an e-commerce entity that is not established in India but systematically offers goods or services to consumers in India.

Foreign digital businesses targeting Indian consumers should therefore evaluate these requirements.

Is the 2% Equalisation Levy still applicable to foreign e-commerce operators?

The 2% Equalisation Levy on e-commerce supply or services does not apply to consideration received or receivable on or after 1 August 2024.

Older articles referring to the levy as a current 2% tax should therefore be updated.

Does an e-commerce company need GST registration in India?

GST requirements depend upon the nature of the entity and transactions.

E-commerce operators, sellers and foreign service providers may have different registration, collection and compliance obligations. The proposed transaction flow should therefore be reviewed before operations begin.

What is the best structure for a foreign e-commerce company entering India?

There is no single structure suitable for every business.

Depending upon the business model, the company may consider:

Distributor/importer model
Wholly Owned Subsidiary
Joint Venture
B2B trading structure
Marketplace model
Manufacturing structure
Single Brand Retail structure

The FDI rules applicable to the proposed commercial activity should be analysed before selecting the entity.

Can EzyBiz India help a foreign e-commerce company establish operations in India?

Yes.

EzyBiz India Consulting LLP assists foreign companies with India market-entry strategy, FDI and FEMA advisory, company incorporation, tax, GST, transfer pricing, regulatory registrations, accounting and ongoing compliance.

Related India Market Entry Services

India Market Entry Consulting

End-to-end advisory for foreign businesses evaluating, establishing and expanding operations in India.

Business Setup in India

Assistance with selecting the appropriate Indian business structure and implementing the setup.

Foreign Company Registration in India

Registration and regulatory assistance for overseas companies establishing an Indian business presence.

Wholly Owned Subsidiary in India

Incorporation, FDI, FEMA and ongoing compliance support for foreign-owned Indian subsidiaries.

Joint Venture Registration in India

Structuring and implementation assistance for foreign businesses partnering with Indian companies.

Distributor Appointment Services in India

Assistance for foreign companies looking to test or develop the Indian market through local distribution partners.

India Market Entry Services by Country

Country-specific guidance for overseas businesses entering India from major global markets.

Official Regulatory References

Department for Promotion of Industry and Internal Trade – Foreign Direct Investment Policy
DPIIT FDI Policy

DPIIT – FDI Policy for E-Commerce
DPIIT Press Note No. 2 (2018 Series)

Department of Consumer Affairs – Consumer Protection Rules
Consumer Protection (E-Commerce) Rules

Ministry of Electronics & IT – Digital Personal Data Protection Rules
DPDP Rules, 2025

Open Network for Digital Commerce
ONDC Official Website

Government e-Marketplace
GeM Official Website

Income Tax Department – Equalisation Levy Update
Section 165A – E-Commerce Equalisation Levy

Planning to Establish or Expand Your Business in India?

Get end-to-end assistance with India market entry strategy, entity setup, regulatory approvals and post-entry compliance.

Speak With Our India Entry Experts

Prepared by: EzyBiz India Consulting LLP – India Entry & Regulatory Team

Reviewed by: EzyBiz India Consulting LLP – Tax & Regulatory Team

Last Updated: August 2026

Disclaimer

This article is intended for general informational purposes only and does not constitute legal, tax, investment or regulatory advice. India’s FDI policy, FEMA regulations, e-commerce rules, tax laws, data-protection requirements and sector-specific regulations may change from time to time. The regulatory treatment of an e-commerce business depends significantly upon its business model, ownership, products, customers and transaction structure. Professional advice should therefore be obtained before establishing or operating an e-commerce business in India.