The 2026 Founder’s Guide To Ecommerce Accounting In India

Key Takeaways

• Ecommerce accounting is not standard accounting. You must track gross sales, not just what hits your bank account. Every marketplace payout is net of commissions, TCS, and TDS.
• GST TCS rate (effective July 10, 2024): E-commerce operators deduct TCS at 0.5% of net taxable supplies (0.25% CGST + 0.25% SGST for intrastate; 0.5% IGST for interstate). This is credited to your electronic cash ledger via GSTR-2B.
• Income Tax TDS under Section 194-O: Marketplaces deduct TDS at 1% of gross sales once your payouts from a single platform cross ₹5,00,000 in a financial year. This appears in your Form 26AS and reduces your final income tax bill.
• GSTR-8 deadline: E-commerce operators file this by the 10th of the following month, disclosing TCS collected. Your TCS credit shows up in GSTR-2B after this filing.
• GST registration: Since October 1, 2023, goods sellers on e-commerce platforms can avail the standard ₹20 lakh turnover threshold exemption. Inter-state sellers and service sellers still require mandatory registration regardless of turnover.
• The reconciliation gap problem: Recording your net bank payout as revenue is the single most expensive bookkeeping mistake in ecommerce. It understates your gross sales, mismatches your GST returns, and inflates your apparent margins.
• ITR forms: Sole proprietors file ITR-3 (or ITR-4 under presumptive taxation if turnover ≤ ₹3 crore and digital receipts exceed 95%). Firms and LLPs file ITR-5. Private limited companies file ITR-6.
• Tax audit trigger: Turnover above ₹1 crore (₹10 crore if cash transactions are under 5%) requires a CA audit under Section 44AB.

Introduction

Ecommerce accounting is the process of tracking revenue, expenses, tax obligations, and compliance for businesses that sell goods or services online, whether on Amazon, Flipkart, Meesho, their own direct-to-consumer store, or any combination of platforms. It is fundamentally different from standard business accounting because the money flows through an intermediary before it reaches you, and that intermediary collects tax, deducts fees, and remits a net figure that looks nothing like your actual sales.

Here is what makes it complicated in the Indian context specifically: the marketplace deducts GST TCS (Tax Collected at Source) under Section 52 of the CGST Act, deducts income tax TDS (Tax Deducted at Source) under Section 194-O of the Income Tax Act, and nets out platform commissions, all before transferring money to your account. Your GST liability, however, is calculated on your gross sale value, not on what you received. If you are only tracking what lands in your bank, you are filing wrong.

Many Indian founders, from D2C brands in Mumbai to multi-category sellers in Delhi, use a CA-as-a-Service like Virtual Accounting to handle this without the overhead of a full-time finance hire. But whether you outsource or manage it in-house, the mechanics are the same. This guide covers all of it.

What Makes Ecommerce Accounting Different From Regular Business Accounting

In standard accounting for online sellers, the assumption is straightforward: you sell something, the customer pays you, and you record the revenue. Taxes are filed separately. There are two parties, you and the customer.

In ecommerce, there are three: you, the customer, and the marketplace. The marketplace acts simultaneously as your sales channel, your payment collector, your logistics partner, and, critically, a statutory tax agent on behalf of the government.

Take a simple example. You sell a product for ₹10,000 on Amazon. Here is what actually happens before that money reaches your bank account:

• Amazon charges a commission of, say, ₹1,500 (15% of sale value), plus 18% GST on that commission = ₹270
• Amazon deducts GST TCS at 0.5% on net taxable value = approximately ₹47
• Amazon deducts income tax TDS under Section 194-O at 1% of gross sale = ₹100
• Amazon deducts any shipping or FBA storage fees applicable

You might receive somewhere around ₹8,000 to ₹8,500 in your bank, depending on the category and fulfilment type. But your GST liability is on ₹10,000. Your revenue is ₹10,000. Your commissions are a separate expense. Your TCS and TDS are advance tax payments, not deductions from income.

This layered structure is why accounting for online sellers demands its own system, not just a column added to a standard Tally ledger.

Additional complexity specific to ecommerce businesses:

• SKU-level cost tracking is essential to know which products are actually profitable after all deductions
• Return rates vary by category and must be accounted for at the order level, not as a lump monthly figure
• Marketplace settlement cycles (typically T+7 to T+15 days) mean money you earned in March may land in April, creating period-end mismatches
• Multiple platforms mean multiple reconciliation workflows, each platform has its own settlement report format, fee structure, and TCS deduction logic

GST For Ecommerce Sellers — TCS, Registration, And Returns

The Registration Question

As of October 1, 2023, the rules on GST registration changed for ecommerce sellers of goods. Under an amendment to the CGST Act, sellers of goods through e-commerce platforms can now avail the standard GST registration exemption threshold, ₹20 lakh annual turnover (₹10 lakh for special category states like Manipur, Mizoram, Nagaland, and Tripura).

However, this exemption does not apply to:

• Sellers making inter-state supplies (selling to customers in a different state), mandatory registration regardless of turnover
• Service providers selling through e-commerce platforms, mandatory registration regardless of turnover
• Sellers who are already registered for other reasons

If you are a small seller operating only within your home state and selling goods, you may now legally avoid GST registration below the threshold. But the moment you ship to a buyer in another state, the exemption disappears. Most active marketplace sellers on Amazon or Flipkart ship interstate by default, which means GST registration is effectively mandatory for the vast majority.

How GST TCS Works — Ecommerce GST Accounting

TCS under Section 52 of the CGST Act is the mechanism by which e-commerce operators (ECOs) like Amazon and Flipkart act as tax collectors on your behalf. Effective July 10, 2024 (via CBIC Notification No. 15/2024), the rate is 0.5% of net taxable supplies, broken down as 0.25% CGST + 0.25% SGST for intrastate transactions, or 0.5% IGST for interstate transactions.

Note: The TCS rate was previously 1% (0.5% CGST + 0.5% SGST). The reduction to 0.5% total became effective from July 10, 2024. If you are looking at pre-July 2024 settlement reports, you will see the higher rate.

The ECO deposits this TCS with the government and files GSTR-8 by the 10th of the following month. Once filed, the TCS amount appears in your GSTR-2B. From there, it is credited to your electronic cash ledger and can be used to offset your output GST liability in GSTR-3B.

Your Own GST Return Obligations

As a registered ecommerce seller, you must file:

• GSTR-1: Monthly by the 11th of the following month, or quarterly by the 13th of the month following the quarter (if you are under the QRMP scheme with turnover under ₹5 crore)
• GSTR-3B: Monthly or quarterly net tax payment return
• GSTR-9: Annual return, due by 31 December of the following financial year

Input Tax Credit (ITC) you should not be missing: The commission Amazon or Flipkart charges you carries 18% GST, and that GST is your ITC. On ₹1 lakh in monthly commissions, you have ₹18,000 in claimable ITC sitting in your GSTR-2B every single month. Many sellers never claim it. That is ₹2.16 lakh a year left on the table.

Also claimable: GST on courier services, warehousing, packaging materials, and advertising on the platform, provided you have valid tax invoices and the amounts reflect in GSTR-2B.

One more thing to be explicit about: The Composition Scheme is not available to you as an ecommerce seller making inter-state supplies, or if you are selling through an ECO. Do not let anyone tell you otherwise.

Section 194-O TDS — What Marketplaces Deduct And How To Recover It

Section 194-O came into effect on October 1, 2020. It requires every e-commerce operator to deduct TDS at 1% of the gross amount of sales or services facilitated through its platform before making payment to the seller.

Key mechanics:

• Threshold: TDS applies only when payments to a specific seller exceed ₹5,00,000 in a financial year. Below this, no TDS is deducted for resident individuals and HUFs.
• PAN is mandatory: If you have not furnished your PAN to the marketplace, the TDS rate jumps to 5% under Section 206AA. At scale, this is a significant cash flow hit.
• Where it shows up: Your TDS deductions appear in Form 26AS (Part A) and the Annual Information Statement (AIS) on the income tax portal at incometax.gov.in.
• How to claim it: The TDS is pre-populated in your ITR. You are not filing a separate claim, it automatically reduces your final income tax liability at the time of filing. The TDS is advance income tax paid on your behalf, not a fee or a cost.
• What to watch for: The TDS deducted in the marketplace's settlement report must match what appears in Form 26AS. If the ECO has deposited less than what was deducted, or made an error in your PAN mapping, the mismatch will surface when you file your ITR and can trigger a demand notice. Download Form 26AS and AIS every quarter. Cross-check against your settlement reports before filing.

TDS deposit deadline by ECO: 7th of the following month (with an exception for March, where the deadline is 30 April). ECOs file quarterly TDS returns in Form 26Q.

Ecommerce Bookkeeping — Records Every Online Seller Must Maintain

Good ecommerce bookkeeping is not just about compliance. It is what tells you whether your business is actually making money after the platform takes its cut.

Under Section 44AA of the Income Tax Act, you are required to maintain books of accounts if your business turnover exceeds ₹25 lakh. Under GST law (Section 35 of the CGST Act), records must be maintained for 72 months (6 years) from the due date of the annual return for the relevant year. If you are an active ecommerce seller, both thresholds likely apply.

The minimum set of records you must maintain:

• Sales register: Order-level detail, date, order ID, SKU, gross sale price, GST collected, platform, customer's state
• Purchase register: Supplier invoices for inventory, with GST breakup for ITC claims
• Expense register: Commissions, shipping, advertising spends, returns, packing costs
• Bank and payment ledger: Reconciled against marketplace settlement reports each month
• Stock/inventory register: Opening stock, purchases, closing stock per SKU
• TCS register: Matched to GSTR-2B month by month
• TDS register: Matched to Form 26AS quarter by quarter

Chart of accounts specific to ecommerce — go beyond the default Tally setup. You need dedicated ledgers for:

• Marketplace Commission Expense (by platform)
• Returns and Refunds
• Inbound Shipping
• Outbound Shipping
• Platform Advertising Spend
• FBA or Marketplace Storage Fees
• TCS Receivable (asset account, cleared when offset in GSTR-3B)
• TDS Receivable (asset account, cleared at ITR filing)

On accounting method: most small sellers run on cash basis, you record income when money lands in your account. It is simple, but it creates a distorted picture. Accrual basis, recording income when the sale happens and expenses when incurred, gives you accurate monthly P&L and is mandatory for companies and LLPs under the Companies Act. If you are a proprietor building toward meaningful scale, shifting to accrual accounting early saves a painful transition later.

Revenue Reconciliation — Matching Marketplace Payouts To Actual Sales

This is the single most important operational habit in ecommerce accounting, and the one most sellers skip.

The core mistake: You receive ₹4,23,000 from Amazon in your bank account for the month of June. You open Tally and record ₹4,23,000 as revenue. Your GSTR-1 shows ₹4,23,000 in sales. But Amazon's settlement report shows you facilitated ₹5,80,000 in gross sales during that period. The gap, ₹1,57,000, is commissions, TCS, TDS, return adjustments, and storage fees. Your GST return is understated by ₹1,57,000 in taxable turnover. That is a compliance problem.

The reconciliation process, done monthly:

1. Download the settlement report from the marketplace seller portal for the period
2. Identify the gross sales value, this is your revenue figure for accounting purposes
3. Reconcile gross sales against your GSTR-1 filed for that period, they must match
4. Reconcile TCS deducted in the settlement report against your GSTR-2B (populated from the ECO's GSTR-8)
5. Reconcile TDS deducted in the settlement report against Form 26AS
6. Book all deductions, commissions, fees, returns, storage, as expenses in the relevant ledgers, not as revenue reductions
7. Match the net payout figure to your actual bank statement

On returns: Every cancelled or returned order must be reversed in your sales register with a credit note under GST. Returns not reversed in GSTR-1 inflate your output tax liability. You pay more GST than you owe.

On settlement lag: If you are on accrual accounting and the period ends mid-cycle, the unsettled amount must be recorded as accounts receivable, money earned but not yet remitted. On cash basis, note it separately so your monthly P&L is not understated.

Inventory Accounting And COGS For Ecommerce Businesses

COGS (Cost of Goods Sold) is calculated as:

Opening Stock + Purchases During the Period − Closing Stock = COGS

This seems obvious, but ecommerce sellers routinely get it wrong in ways that distort profitability.

Under AS-2 (Valuation of Inventories), the applicable Indian accounting standard, inventory must be valued at the lower of cost or net realisable value. Permitted costing methods are FIFO (First In, First Out) or Weighted Average Cost. LIFO is not permitted.

Practical considerations:

• If you use Amazon FBA or Flipkart Fulfilment, your inventory is physically split between your own warehouse and the marketplace's fulfillment center. Both locations must be tracked in your inventory register. "Inventory in transit" (dispatched to a fulfillment center but not yet confirmed received) should sit in a separate ledger.
• Returned units that are restockable must re-enter your inventory at their original cost. Missing this inflates COGS and understates closing stock.
• Dead stock and write-offs: Slow-moving inventory that is damaged, expired, or unsaleable must be formally written off with documentation (physical verification, internal approval). When you write off inventory, you must reverse the ITC claimed on those goods under Section 17(5)(h) of the CGST Act. Failing to do this is a GST compliance violation.
• Tax audit implications: If your turnover crosses ₹1 crore (or ₹10 crore where cash transactions are under 5% of total), Section 44AB mandates a CA tax audit. Inventory records are specifically examined in this audit.

Income Tax Filing For Ecommerce Businesses — ITR Forms And Deadlines

Your ITR form depends on your business structure:

Section 44AD — Presumptive Taxation: If your turnover is ₹3 crore or below and more than 95% of your receipts are digital (which most marketplace payouts are), you can opt to pay tax on a deemed profit of 6% of turnover without maintaining detailed books or undergoing audit. This simplifies compliance significantly, but only makes sense if your actual net margins are below 6%. Most product-based ecommerce businesses with COGS, shipping, and marketing costs may have real margins in that range or below, so run the numbers before assuming the presumptive route saves you money.

Key filing deadlines for FY 2025-26 (AY 2026-27):

• Non-audit cases (individual proprietors): 31 July 2026
• Audit cases (companies, firms, LLPs requiring tax audit): 31 October 2026
• Transfer pricing cases: 30 November 2026

Advance tax: If your estimated tax liability for the year exceeds ₹10,000, you must pay in four instalments, 15% by 15 June, 45% by 15 September, 75% by 15 December, and 100% by 15 March. Ecommerce sellers often underpay advance tax in the first half of the year because they underestimate Q3 and Q4 (festival season) sales. A quarterly P&L review from your books prevents this.

Common Ecommerce Accounting Mistakes That Cost Indian Sellers Money

1. Recording net payout as revenue. Already covered, but worth repeating because it is so common. The fix takes ten minutes per month and prevents months of GST reconciliation nightmares.

2. Missing ITC on marketplace commissions. Amazon, Flipkart, and Meesho all charge 18% GST on their commission invoices. If you are not claiming this in GSTR-3B, you are overpaying GST. On ₹1,00,000/month in commissions, that is ₹18,000/month in unclaimed credit, ₹2.16 lakh a year.

3. Not reversing returns in GSTR-1. Every return needs a credit note. Unreversed returns mean your output GST liability is higher than it should be.

4. Not tracking the ₹5,00,000 TDS threshold. Once your cumulative annual payout from a single ECO crosses ₹5 lakh, TDS at 1% kicks in on all subsequent payments. If you are not tracking this, it surprises you mid-year and creates Form 26AS mismatches at ITR time.

5. Treating inventory purchase as an immediate expense. Buying ₹5 lakh of stock in April is not a ₹5 lakh April expense. It is inventory on your balance sheet, expensed as COGS only when that stock is sold. Booking it directly as an expense wrecks your monthly P&L and understates your profit.

6. Mixing personal and business bank accounts. Common among new solopreneurs. Comingles income and expenses, makes ITC claims difficult to substantiate, and turns a straightforward tax audit into a nightmare.

7. Late GSTR-1 filing. The late fee is ₹50 per day (₹25 CGST + ₹25 SGST), capped at ₹10,000 per return. For nil returns, ₹20 per day capped at ₹5,000. On its own, not catastrophic. But late GSTR-1 also means your buyer cannot see your invoice in their GSTR-2B, which delays their ITC, and in B2B scenarios, that creates friction with your buyers.

How To Set Up Accounting For Your Ecommerce Business In India

Whether you are launching your first product or cleaning up a few years of messy books, here is the practical setup sequence.

Step 1 — Register your business and obtain GSTIN. Apply on the GST portal at gst.gov.in. PAN is a prerequisite. Get this done before your first listing goes live on any marketplace.

Step 2 — Open a dedicated business bank account. Mandatory for companies and LLPs. For proprietors, it is strongly recommended. Clean separation between personal and business transactions is the foundation of every other step here.

Step 3 — Choose accounting software. Tally Prime is the most widely used option for Indian businesses, good GST compliance features, handles multi-location inventory, widely understood by Indian CAs. Busy Accounting is a strong alternative with similar capabilities. For very early-stage sellers under 50 orders a month, a structured Excel model with dedicated columns for gross sales, commissions, TCS, TDS, and COGS works until you outgrow it. Note: QuickBooks India was discontinued, do not build on it.

Step 4 — Connect and schedule your marketplace data pulls. Amazon Seller Central, Flipkart Seller Hub, and Meesho all provide downloadable settlement reports and tax reports. Set a fixed date, say, the 3rd of every month, to pull the previous month's data, reconcile it, and book it.

Step 5 — Set up a chart of accounts for ecommerce. Standard defaults will not cut it. You need: Revenue by marketplace or channel, COGS, Marketplace Commissions (by platform), Platform Advertising, Inbound and Outbound Shipping, Returns and Refunds, GST Payable, TCS Receivable, TDS Receivable.

Step 6 — Decide on your accounting support model. Your main options for ecommerce accounting India:

• Virtual Accounting by AI Accountant — Tech-enabled CA-as-a-Service covering bookkeeping, GST (GSTR-1, 3B, 9), TDS, and ITR. Pricing from ₹4,000/month for up to 200 transactions. Well suited for ecommerce sellers who want CA-supervised compliance without the overhead of a hire.
• Local CA retainer — ₹5,000 to ₹20,000/month depending on volume and services. Quality varies significantly. Works well if you have a CA who understands marketplace accounting specifically.
• In-house bookkeeper — ₹15,000 to ₹30,000/month for a metro-city hire. Makes sense at meaningful transaction volumes, but you still need a CA for GST and ITR signoffs.
• DIY with accounting software — Viable at low volumes if you have the bandwidth to stay current on GST rule changes and reconciliation requirements.

Step 7 — Build a monthly close checklist. Reconcile settlements by the 3rd. File GSTR-1 by the 11th. Check GSTR-2B by the 14th. Pay net GST via GSTR-3B by the 20th. Download Form 26AS. Update inventory. Generate P&L. Thirty days goes fast, without a checklist, the 11th arrives before the 3rd's reconciliation is done.

Frequently Asked Questions: Ecommerce Accounting

1. Is GST registration mandatory for all ecommerce sellers in India?

Since October 1, 2023, sellers of goods through e-commerce platforms can avail the standard ₹20 lakh turnover threshold exemption. However, inter-state sellers and service providers selling through e-commerce platforms must still register regardless of turnover. Most active marketplace sellers ship across states and therefore need GST registration.

2. What is the difference between TCS and TDS in ecommerce?

TCS (Tax Collected at Source) under Section 52 of the CGST Act is a GST deduction by the marketplace at 0.5% of net taxable supplies. You claim it via GSTR-3B based on GSTR-2B. TDS (Tax Deducted at Source) under Section 194-O is an income tax deduction at 1% of gross sales. You claim it via your ITR based on Form 26AS. They are completely separate mechanisms.

3. How do I claim TDS deducted by Amazon or Flipkart?

The TDS appears in your Form 26AS and AIS on incometax.gov.in. When you file your ITR, this TDS is pre-populated and automatically reduces your final income tax liability. You do not file a separate claim, but you must verify that the amount in Form 26AS matches what appears in your settlement reports.

4. What ITR form should a sole proprietor selling on Flipkart use?

ITR-3, if you maintain books of account. If your turnover is ₹3 crore or below and more than 95% of receipts are digital, you can opt for ITR-4 under the presumptive taxation scheme (Section 44AD), where income is deemed at 6% of turnover.

5. What is the penalty for late GSTR-1 filing?

₹50 per day (₹25 CGST + ₹25 SGST), capped at ₹10,000 per return. For nil returns, ₹20 per day capped at ₹5,000.

6. Can I use the GST Composition Scheme as an ecommerce seller?

No. The Composition Scheme is not available to sellers making inter-state supplies or to sellers registered with e-commerce operators. Most active marketplace sellers are excluded on both grounds.

7. What happens if my GSTR-1 sales don't match my marketplace gross sales report?

This is typically caused by returns not being reversed via credit notes in GSTR-1, or timing differences in settlement cycles. The mismatch creates excess GST liability. Fix it by issuing credit notes for all returns in the same period and reconciling settlement report timing with your return period.

8. How long must I keep my ecommerce accounting records?

Under Section 35 of the CGST Act, records must be maintained for 72 months (6 years) from the due date of the annual return for that year. Under Section 44AA of the Income Tax Act, books must be maintained for at least 6 years as well.

9. At what turnover does a tax audit become mandatory for my ecommerce business?

Under Section 44AB, a tax audit by a CA becomes mandatory if your gross turnover exceeds ₹1 crore in a financial year. This threshold rises to ₹10 crore if less than 5% of your total receipts and payments are in cash, which is typical for ecommerce businesses.

10. What is the correct way to account for a product returned by a customer?

The return must be reversed in your sales register via a credit note under GST. If the returned unit is restockable, it must re-enter your inventory register at its original cost. If it is damaged or unsaleable and you write it off, you must reverse the ITC originally claimed on that unit under Section 17(5)(h) of the CGST Act.

Need this handled without building the systems yourself? Virtual Accounting's CA team manages the full ecommerce accounting stack, GST reconciliation, TDS tracking, bookkeeping, and ITR filing, from ₹4,000/month. Details at https://www.aiaccountant.com/accounting-bookkeeping-services.