Ecommerce Accounting Mistakes in India: What Most Businesses Overlook

Ecommerce businesses often struggle with complex laws, frequent regulatory updates, and digital compliance requirements. These challenges lead to a range of ecommerce accounting mistakes that can prove costly.

Here is a look at errors in ecommerce accounting, which are common and some which are often overlooked by Indian ecommerce sellers. We also go through pointers on how to avoid them.

42 Errors in Ecommerce Accounting You May Be Missing & How to Avoid Them

Let’s take a look at these errors one by one:

⚖️Errors Related to GST & Complicance

1. GST on Shipping Charges: 

Many ecommerce businesses incorrectly treat shipping or delivery charges as separate from the product, applying a flat 5% GST or none at all.

Correct Practice:  As per GST law, shipping is an ancillary service and should be taxed at the same rate as the product being sold. 

2. GST on Free Samples or Free Goods

Assuming free samples are non-taxable and skipping GST reporting for promotional offers like “Buy 1 Get 1 Free”.

Correct Practice:  Supplying goods without consideration in the course of business may still attract GST. Sellers must also reverse ITC on inputs used for such goods.

3. Multi-State GST Compliance

Using a single GSTIN to fulfill orders across multiple states, especially when using fulfillment centers or third-party warehouses.

Correct Practice: Businesses must register for GST in every state from where they store or supply goods. Failing to do so violates GST law.

4. Input Tax Credit (ITC) Errors

Ineligible or mismatched ITC claims are red flags during audits and can lead to interest, penalties, or denial of credits.

Correct Practice:

• Claim ITC only on eligible business expenses.
• Reconcile ITC monthly using GSTR-2B before filing GSTR-3B.
• Reverse ITC if payment timelines are not met

5. Overlooking Reverse Charge Mechanism (RCM) Applicability 

Missing RCM entries on services such as legal fees, import of services, etc results in unpaid tax liabilities, non-compliance, and missed credit opportunities.

Correct Practice: Under RCM, the recipient (not the supplier) pays GST and later claims ITC if eligible. Maintain proper documentation and pay GST via cash ledger.

Learn More: RCM understand GST

6. Overlooking E-invoicing & HSN Code Updates

Not generating e-invoices even after crossing the mandatory turnover threshold or using outdated or incorrect HSN codes.

Invoices without IRN or incorrect HSN codes may be rejected, leading to loss of ITC for buyers and penalties for non-compliance.

Correct Practice: Track your turnover and once you cross the threshold,  generate e-invoices via the Invoice Registration Portal (IRP). Use 6 or 8-digit HSN codes as mandated based on turnover.

Explore: E- Invoicing Under GST

7. Missing Dynamic QR Codes on Invoices

Forgetting to include a dynamic QR code on B2C invoices for high-turnover businesses.

 Non-compliance can attract penalties under GST law and limit digital transaction traceability.

Correct Practice: If your turnover exceeds ₹20 Cr, each B2C invoice must have a QR code containing payment and invoice details. Ensure digital payment options are integrated with QR generation.

8. Ignoring Timely Deposit and Accurate Reporting of TDS/TCS

Mismatch in TCS/TDS records leads to credit loss, income tax scrutiny, and GST return mismatches.

Correct Practice:

• Sellers must reconcile sales with TCS credits in Form 26AS and GSTR-8.
• E-commerce platforms must deposit TDS under Section 194-O and report in Form 26Q.

9. Not Segregating B2B and B2C Transaction Reporting

Failing to separate B2B and B2C transactions while filing GSTR-1, or reporting B2B transactions without GSTIN.

 Wrong classification affects your buyer’s ITC claim and may result in reconciliation mismatches and audit flags.

Correct Practice:

• Report B2B transactions with buyer’s GSTIN.
• B2C transactions should be grouped based on the invoice value and supply location.

10. Not Tracking Place of Supply Rules for Service Transactions

Applying CGST/SGST or IGST incorrectly on services (e.g., digital ads, influencer marketing, design services).

Correct Practice: Understand GST’s Place of Supply rules: If supplier and recipient are in different states, IGST applies. If both are in the same state, CGST + SGST applies.

📦Inventory and Cost Management Issues

11. Not Tracking Inventory Correctly

Relying on manual spreadsheets or disconnected systems that don’t update stock levels across platforms like Amazon, Flipkart, Shopify, and your own D2C website. 

Many businesses also fail to adjust inventory for returns, cancellations, or damaged goods.

Correct Practice: 

• Implement an integrated Inventory Management System (IMS) to sync real-time data across all sales channels,
• Include orders, returns, and warehouse stock. 
• Maintain accurate records of stock movement, ensuring correct GST reporting.

12. Incorrect Calculation of Cost of Goods Sold (COGS)

Using a simplified formula (Opening Inventory + Purchases – Closing Inventory) without including all relevant direct costs such as freight-in, import duties, customs charges, and handling expenses.

Correct Practice:  COGS must reflect the true landed cost of products. Use a detailed formula:

COGS = Opening Inventory + (Purchases + Freight-in + Customs Duties + Packaging + Direct Costs) − Closing Inventory

Ensure that inbound shipping and other directly attributable costs are allocated to inventory, not just treated as separate expenses.

13. Mishandling Seasonal Inventory Write-Offs

Failing to periodically write down the value of obsolete, damaged, or unsellable inventory, especially in sectors like fashion, electronics, and seasonal goods.

Correct Practice:  Conduct quarterly inventory audits to evaluate product salability. Create provisions for obsolete stock and write down inventory to its Net Realizable Value (NRV), following the accounting principle of prudence.

14. Incorrect Treatment of Logistics and Fulfillment Costs

Misclassifying costs like shipping, packaging, returns handling, and warehousing. Sellers often:

• Lump all such costs into general admin expenses
• Fail to allocate them per SKU or sales channel
• Misreport them in COGS or GST filings

Correct Practice:

• Capitalize inbound logistics (e.g., supplier freight) into inventory cost and COGS.
• Record outbound logistics (e.g., shipping, packaging, FBA fees) as Selling & Distribution Expenses.
• Allocate fulfillment costs per SKU to analyze true product profitability.
• Use ERP/accounting tools to tag costs to specific orders or product lines.

💲Revenue Recognition and Transaction Management Errors

15. Misreporting Cash on Delivery (COD) Transactions

Recording COD orders as revenue at the time of shipment or order placement, without waiting for cash collection or successful delivery.

Correct Practice:

• Recognize revenue only after delivery is confirmed and cash is collected
• Keep undelivered COD orders classified as inventory in transit
• Track remittances from logistics partners net of their service charges

16. Mishandling Returns and Refunds

• Not creating provisions for expected returns
• Failing to reverse original sale, GST, or inventory on actual returns
• Ignoring condition-based adjustments (e.g., damaged returns)

Correct Practice:

• Create a Returns Provision Account based on historical return rates
• On actual returns, reverse:
  • Sales and GST liability
  • Inventory or create write-off if product is unsellable
• Reconcile marketplace RTOs and refunds regularly

17. Improper Treatment of Marketplace Commissions & Fees

• Recording only net payouts from Amazon/Flipkart as revenue
• Ignoring or misclassifying platform commissions, shipping charges, and payment gateway fees

Correct Practice:

• Record gross sales as revenue
• Separately account for:
  • Commission/fees as expenses
  • GST on fees as input credit (if applicable)
• Use reconciliation reports from marketplaces to allocate platform costs per order or SKU

18. Mishandling Advance Payments and Security Deposits

Treating all incoming cash such as customer advances or security deposits, as revenue at the time of receipt.

Correct Practice:

• Record customer advances as a liability (“Deferred Revenue”)
• Pay GST on advances if applicable (as per Section 13 of CGST Act)
• For security deposits, recognize revenue only when:
  • The deposit is adjusted against a sale, or
  • Forfeited due to breach/contract termination

19. Improper Treatment of Gift Cards & Store Credits

• Recognizing revenue on issuance of gift cards or wallet credits
• Failing to reverse unused or expired credits appropriately

Correct Practice:

• Treat gift card sales as a liability (“Unearned Revenue”)
• Recognize revenue only when the gift card or credit is redeemed for goods/services
• For breakage (expired credits), apply accounting estimates per Ind AS 115 guidelines

20. Overlooking Dynamic Pricing and Discount Adjustments

• Recording list price as revenue instead of actual selling price
• Not reflecting real-time price changes, surge pricing, or applied discounts in accounting records

Correct Practice:

• Integrate your accounting system with POS/ecommerce platform to:
  • Record actual sale price after discounts
  • Capture dynamic changes at order level or SKU level
• Net discounts funded by the seller should reduce revenue, not appear as separate marketing expense

21. Ignoring Marketplace-Funded Discounts & FDI Compliance

• Treating marketplace-funded discounts as seller’s expense
• Failing to get a credit note or GST-compliant document for marketplace share

Correct Practice:

• Ensure platform provides proper credit note for their funded discount
• Reflect this in your GST return to avoid paying GST on pre-discount value
• Maintain clear segregation between seller-funded vs platform-funded promotions

🔊Common Marketing and Promotion Accounting Mistakes

22. Incorrect Treatment of Digital Marketing Expenses

Capitalizing short-term digital ads (Google, Meta, influencer campaigns) or treating long-term digital asset creation as immediate expense

Correct Practice:

• Expense performance marketing in the period incurred
• Capitalize only when a long-term digital asset is created (e.g., branded content library)

23. Improper Accounting for Discounts & Coupons

Treating seller-funded coupons as a marketing expense

Correct Practice:

• Record revenue net of seller-funded discounts
• Coupons reduce transaction value and must reduce revenue, not increase expenses

24. Mishandling Influencer Marketing & TDS Compliance

Failing to deduct TDS under Section 194J / 194C / 194R on:

• Influencer payments
• Barter transactions (free product in exchange for promotion)

Correct Practice:

• Deduct TDS (typically 10% under 194J or 5% under 194R)
• Issue Form 16A to the influencer
• Account for the fair market value of any non-cash benefit as per tax law

25. Ignoring Costs from Quick Commerce Platforms (Zepto, Blinkit, Swiggy Instamart)

• Not allocating high fulfillment costs of 10–15 minute delivery models
• Ignoring penalties or performance-based fees

Correct Practice:

• Classify fees and commissions from quick commerce partners under Logistics expenses, or Cost of sales (depending on model)
• Track costs per order or per SKU, especially for bundled promotions

📃Documentation and Record-Keeping Mistakes

26. Not Using a Proper Chart of Accounts (CoA)

Using a basic CoA or one that’s designed for traditional retail or service businesses, failing to capture the complexity of online selling— one order may involve multiple deductions like platform commission, shipping, payment gateway charges, and GST.

Correct Practice: Design an e-commerce-specific CoA, with distinct ledgers for:

• Sales per platform (Amazon, Flipkart, Shopify, etc.)
• Marketplace/affiliate commissions
• Payment gateway fees
• Advertising and promotions
• GST collected and paid
• Inventory movement and COGS

27. Using Inappropriate or Generic Accounting Software

E-commerce involves thousands of micro-transactions, each potentially tied to different tax rates, platforms, and costs.

Correct Practice: Use cloud-based or GST-integrated software like:

• Zoho Books – e-commerce integrations, GST-ready
• TallyPrime with GST modules – robust for Indian compliance

Check Here: Best Ecommerce Software in India

28. Not Maintaining Proper Documentation for Input Services

Many service providers (like freelance designers, logistics partners, ad agencies) issue invoices that lack GST numbers or correct HSN/SAC codes.

Correct Practice:

• Verify vendor GST details before onboarding
• Set up a document control workflow for capturing and validating invoices before payment
• Maintain digital backups of all input service bills in cloud storage (like Google Drive or Zoho WorkDrive)

29. Not Maintaining Proper Records for Export Transactions

Assuming that shipping goods outside India is “GST-free” and skip documentation not considering zero-rated exports requirements.

Correct Practice:

• File LUT under GST portal each year
• Track all export shipments with associated shipping bills
• Reconcile exports in GSTR-1 with ICEGATE and FIRC records

30. Not Maintaining Separate Books for Different Business Verticals

Running multiple categories—fashion and electronics—from the same GST registration and accounting setup, leading to mixing of costs, unclear profitability, and regulatory confusion.

Correct Practice:

• Create cost centers or business units in your accounting software
• Consider separate GST registrations if operations are significantly different
• Use financial reports segmented by category, location, or channel

31. Overlooking E-way Bill Compliance

Many sellers assume E-way bills are only for trucks or large shipments. But some interstate movement of goods (even via courier or cargo) requires an e-way bill.

Correct Practice:

• Automate e-way bill generation via your invoicing tool
• Train logistics or warehouse teams on the value thresholds and rules
• Keep backups of generated e-way bills for audit purposes
  

🗺️Cross-Border and Forex-Related Mistakes

32. Failing to Track Cross-Border Compliance (LRS/FEMA)

Ignoring that cross-border payments for ads (Google, Meta), subscriptions (Shopify, AWS), or services are governed by FEMA and Liberalized Remittance Scheme (LRS). .

Correct Practice:

• Classify all international payments under LRS
• Deduct TDS where required (e.g., Google Ads payments from India)
• Keep all Form 15CA/CB documentation and outward remittance forms

33. Failing to Account for Foreign Exchange Fluctuations

International platforms like Amazon or Etsy release payments after weeks, often in USD or EUR. By the time you receive funds, INR has changed. Ignoring this leads to incorrect revenue reporting.

Correct Practice:

• Revalue foreign currency balances at month-end
• Maintain forex gain/loss accounts
• Use multi-currency accounting tools

34. Ignoring Transfer Pricing Compliance

Not taking into account transfer pricing rules when your business deals with related entities abroad (e.g., you’re sourcing from your own Hong Kong subsidiary).

Correct Practice:

• Conduct benchmarking to show prices are at “arm’s length”
• Get a CA or TP consultant to prepare Form 3CEB if required

👥 Employee Classification and Statutory Compliance Mistakes

35. Misclassifying Employees and Freelancers

Treating long-term freelancers like employees but not offer PF/ESI or deduct TDS appropriately.

Correct Practice:

• Clearly define employment terms in contracts
• For freelancers: deduct TDS under Sec 194J or 194C
• For employees: ensure PF/ESI and TDS compliance

36. Not Accounting for Penalty and Interest on Delayed Payments

You missed filing TDS or GST on time. You paid penalties, but didn’t record them separately in your books.

Correct Practice:

• Track all statutory interest/penalty separately
• Use a dedicated ledger (e.g., “Statutory Penalty Expense – Non-Deductible”)
• Reconcile regularly with notices/filings

💻 Modern Ecommerce Models & Technology-Linked Mistakes

37. Mishandling BNPL (Buy-Now-Pay-Later) Accounting

Platforms like LazyPay, Simpl, or ZestMoney pay you later. Many businesses mistakenly treat the full sale as cash received, which misrepresents cash flow and receivables.

Correct Treatment:

• Treat the amount due from BNPL as Accounts Receivable
• Recognize revenue when the BNPL provider confirms acceptance
• Deduct BNPL commission as finance or processing fee

38. Ignoring Subscription Revenue Deferrals (D2C Models)

If you sell a 6-month or annual subscription and record all income upfront, it violates accrual accounting and misstates earnings.

Correct Practice:

• Create a liability account (“Unearned Revenue”)
• Recognize revenue monthly over the subscription period
• Automate this using subscription billing software

39. Not Reconciling Payment Gateway or E-Wallet Balances

Sales via Paytm, Razorpay, Amazon Pay, etc. don’t settle instantly. Some gateways also deduct commissions or hold refunds.

Correct Practice:

• Weekly reconciliation of payment gateway statements with books
• Create clearing accounts per gateway (e.g., “Paytm Clearing”)
• Account for commissions, refunds, and chargebacks accurately

40. Improper Accounting of Loyalty Points / Rewards

Loyalty points create future obligations. Many sellers only account for points when redeemed.

Correct Practice:

• Create provision for unredeemed points
• Estimate breakage rate (unused points) using historical data
• Recognize breakage as income when appropriate

41. Misclassifying Digital Spend as Expense Instead of CapEx

Spending on a custom Shopify app or website and treating this as an “expense” reduces your net profit artificially in Year 1.

Correct Practice:

• Capitalize such costs as Intangible Assets
• Amortize over useful life (e.g., 3–5 years)

How Can PKC Help Ecommerce Accounting?

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✅ Automated GST compliance for multi-marketplace tax management

✅ Real-time inventory tracking across all sales channels

✅ Streamlined payment gateway reconciliation reduces manual effort

✅ End-to-end workflow automation cuts processing time 

✅ Multi-channel sales reconciliation with automated SKU matching

✅ Vendor payment automation with approval workflow controls

✅ Return/refund accounting integrated with inventory adjustments

FAQs on Ecommerce Accounting Mistakes in India