Accounting for Ecommerce Business India: Only Guide You Need (2025)

Accounting for ecommerce business in India is tricky and many sellers find themselves overwhelmed by  the GST rules, marketplace fees, and endless settlement reports.

This guide for ecommerce accounting will simplify things for you as we uncover the essentials so you can manage accounts like a pro.

Key Challenges & Unique Aspects of Ecommerce Accounting India

Ecommerce accounting is significantly more complex than traditional retail accounting. Here’s a quick look at the differences:

Aspect	Ecommerce Accounting	Conventional Accounting
Sales Channels	Multiple online platforms with varying terms	Usually a single or few offline sales channels
Payment Methods	Digital payments, COD, gateways require complex reconciliation	Mostly cash, card, or bank transfers
Returns & Refunds	Frequent and must reverse revenue	Less frequent, simpler to handle
Inventory	Spread across warehouses/FBA; needs real-time tracking	Centralized inventory, easier to manage
Platform Fees	Commissions, shipping, ads—must be tracked per channel	Minimal or no third-party platform fees
Tax Compliance	GST, TCS, TDS rules apply per platform	Simpler tax structure, fewer compliance layers

Let’s now take a closer look at the key challenges and unique aspects of ecommerce accounting in India:

1. Revenue Recognition Complexities

Ecommerce sellers operate across platforms like Amazon, Flipkart, Meesho, Shopify, and their own websites. Accurate revenue recognition is challenging due to:

• Returns, cancellations, and refunds: These reduce recorded sales and affect net revenue.
• Discounts and promotions: Must be separately accounted to determine true profit margins.
• Store credit and gift cards: Treated as liabilities until redeemed, requiring deferred revenue accounting.

Proper revenue recognition ensures compliance with Ind AS 115 and prevents income overstatement.

2. Inventory Management Across Channels

E-commerce businesses must closely track inventory, a key asset that directly impacts COGS and net profit. Challenges include:

• Identifying obsolete or slow-moving stock and adjusting to net realizable value.
• Managing decentralized inventory across own warehouses, amazon FBA/other fulfillment centers, dropshipping partners, and 3PL warehouses

• Real-time stock tracking across locations
• Accounting for goods in transit
• Resolving stock discrepancies
• Adjusting for returns, damages, or shrinkage

Poor inventory management results in stockouts, deadstock, inaccurate COGS, and GST mismatches.

3. Multi-Platform Reconciliation

Reconciling data from bank accounts, payment gateways (e.g., Razorpay, Paytm), and marketplaces is one of the most time-consuming and error-prone tasks.

• Each platform uses different payout formats and timings.
• A single sale may involve multiple entries: sale value, payment gateway fees, marketplace commissions, and final bank deposits.
• Chargebacks (bank disputes) must be tracked separately from refunds, as they involve deductions and additional fees.

Reconciliation involves matching sales invoices, payment gateway statements, marketplace settlement reports and bank credits

Without accurate reconciliation, businesses risk unclaimed income, duplicate entries, and cash flow issues.

4. GST Compliance for Ecommerce Sellers

Indian e-commerce businesses must comply strictly with GST regulations, including:

• GST Registration: Mandatory for all e-commerce sellers, regardless of turnover.
• Correct GST Rates: As per the updated GST slab rates, while for most its 5% and 18%, some products including essential food items are exempt (0% GST) while luxury products attract a high GST rate (40%)
• TCS by Marketplaces: E-commerce platforms like Amazon deduct  0.5% TCS, which sellers must reconcile and claim in GSTR filings.
• Place of Supply Rules: Determines IGST (inter-state) or CGST+SGST (intra-state) based on the buyer’s location.

Non-compliance can result in input credit mismatches, penalties, and cash flow disruptions.

5. Payment Gateway Fees & Cash Flow Delays

Payment gateways charge processing fees (2–3%) and follow different settlement cycles, creating a cash flow lag between the sale and actual bank receipt.

• Fees are a significant expense and must be accurately matched to related sales.
• Timing gaps between sale and settlement strain cash flow—especially for high-volume, low-margin businesses
• Gateways like Razorpay, Paytm, Stripe deduct 1.5%–3% per transaction, delay payouts and may split settlements across multiple entries
• Cash-on-Delivery (COD) adds further delays due to manual collection and higher return rates.

Tracking actual receipts vs. recorded sales is essential to prevent cash flow mismatches.

6. High Volume of Returns & Refunds

E-commerce sees return rates of 20%–30% in categories like fashion and electronics, far higher than offline retail. Accounting needs to account for

• Reversal of revenue and GST on returned sales
• Inventory updates (resellable vs. damaged goods)
• Separate accounting for refund transactions
• Tracking costs of reverse logistics and restocking
• Partial refunds, restocking fees and hidden shipping/packaging losses add an additional layer of complexity

Returns affect profitability beyond revenue reversal, poor handling can lead to inaccurate inventory and margin reporting.

7. Marketing & Promotional Expense Tracking

Digital marketing (Google/Facebook Ads), influencer campaigns, affiliate commissions, and promotions are major spends, but hard to attribute. Challenges include:

• Cost attribution to products, channels, or campaigns
• Integration between marketing and accounting tools
• Tracking Customer Acquisition Cost (CAC) vs. Lifetime Value (LTV)
• Services from overseas platforms (e.g., Google Ads, Facebook Ireland) require self-invoicing, GST payment under RCM, and claiming Input Tax Credit that are often missed.

Misattributed marketing spend distorts product profitability and hinders budgeting accuracy.

8. Real-Time Financial Reporting Needs

Monthly book closure isn’t enough. E-commerce operates in real time and demands continuous financial insights. Key metrics required:

• Channel-wise profitability (e.g., Amazon vs. Flipkart)
• Product-level margins
• CAC vs. LTV
• Daily cash flow forecasts
• Net receivables vs. gross revenue

Delayed reporting leads to stockouts, overspending, or tax non-compliance. Real-time data drives better decisions.

9. International Transactions & Currency Management

Exporting via Amazon Global or self-managed websites adds financial complexity. Main considerations:

• Foreign exchange conversion and fluctuations
• FEMA compliance
• IGST on exports
• Customs documentation and regulatory filings

Mishandling forex, cross-border taxes, or export documentation risks audit issues and revenue loss.

Core Regulatory Considerations for Ecommerce Accounting in India 

Here’s an overview of the core regulations and laws that impact ecommerce accounting in India:

GST Compliance

• Mandatory GST registration compulsory for all e-commerce sellers, regardless of turnover.
• GST-slab rates of 0%,  5%, 18%  and 40% based on the category of goods
• Place of Supply Rules based on customer location
  • Intra-state: CGST + SGST
  • Inter-state: IGST
• TCS by Marketplaces: Platforms deduct TCS; visible in GSTR-2A/2B and claimed in GSTR-3B.

Errors in GST rates, HSN codes, or reconciliation may trigger notices or tax liabilities.

Tax Deducted at Source (TDS)

• Section 194-O of Income Tax Act
• Marketplaces must deduct 1% TDS on gross sales > ₹5 lakh/year.
• Sellers must:
  • Reconcile TDS with Form 26AS and AIS
  • Report in ITR-3/ITR-4
• If PAN/Aadhaar is not furnished, TDS can go up to 5%.

Income Tax Compliance

• Presumptive Taxation is available for small businesses for 6% or 8% of turnover (if eligible).
• Audit Requirements:
  • Turnover > ₹1 crore → Audit under Section 44AB
  • ₹10 crore limit (only if cash transactions <5%)
• Accounting Focus:
  • Proper classification of digital ads, foreign payments, returns, discounts.
  • Reporting digital spend, CAC (Customer Acquisition Cost), and revenue attribution accurately

E-Invoicing Compliance (Rule 48 of CGST Rules)

• Mandatory for B2B businesses with turnover > ₹10 crore
• Invoices must be generated via IRP and carry IRN.
• ERP must integrate with IRP/GSP.

Non-compliance can lead to Invalid ITC claims and penalties.

FEMA & RBI Rules for Cross-Border Ecommerce

• Applies to: Amazon Global, Shopify, Etsy, etc.
• Must comply with FEMA guidelines and route payments via authorized dealers
• Documents Required – FIRC and Softex (services) / Shipping Bills (goods)

Must track forex gains/losses and reverse charge on imported services (e.g. SaaS tools, ad platforms).

Data & Record-Keeping

Ecommerce sellers must maintain books and supporting documents for 6 years, including:

• Sales, purchases, shipping slips
• TCS/TDS certificates
• GST returns, reconciliations
• Payment gateway & bank statements

Digital records must be tamper-proof, organized by year, and accessible.

Audit Triggers & Risk Areas

• Tax audit if:
  • Turnover > ₹1 crore (business)
  • Turnover > ₹10 crore with <5% cash transactions = exempt
• Risks in Ecommerce:
  • Multi-channel revenue
  • Returns, discounts, chargebacks
  • TCS/TDS mismatches
  • Invoice non-standardization

Maintain a clear audit trail for revenue, returns, and GST reconciliation.

Consumer Protection Rules 

Seller Responsibilities

• Display accurate specs, prices, return policies
• Issue valid GST invoices
• Maintain customer grievance redressal

Accounting must support transparent refund tracking and invoice-level traceability.

Other Legal & Operational Compliance

• Sectoral Licenses: FSSAI (food), Legal Metrology, Drug License, Trade License
• FDI Rules: 100% FDI allowed only in marketplace model, No inventory ownership, price control, or preferential treatment

Track license renewal fees and ensure FDI compliance to avoid FEMA issues.

Technology & Data Protection

• DPDP Act, 2023: Comply with personal data protection standards.
• Systems must encrypt financial and personal data and log access/edit history (Companies Act compliance)

Secure ERP/accounting systems are critical for both financial integrity and regulatory compliance.

Different Ecommerce Business Models and Their Accounting Impact

Each ecommerce business model affects accounting processes differently. 

From how revenue is recognized to how inventory is valued, your model determines your accounting obligations and reporting structure.

1. Marketplace Seller Model (e.g., Amazon, Flipkart, Meesho)

You list your products on a marketplace. The platform collects payment, deducts commissions, fees, shipping, and taxes, then pays you the remainder.

Accounting Impacts:

• TCS Compliance: Marketplaces deduct 0.5% TCS, which must be reconciled and claimed in GST returns.
• Fee Tracking: Marketplace commissions, listing fees, shipping charges, and ad spends must be properly recorded.
• Revenue Recognition: Gross sales must be recorded separately from net payouts.
• Complex Reconciliation: Requires matching sales, returns, and payments from multiple reports.

2. Own Website Model (Shopify, WooCommerce, Magento)

You manage your store, process payments through gateways, and ship directly to customers.

Accounting Impacts:

• Payment Gateway Reconciliation: Fees and settlement delays from Razorpay, Paytm, Stripe must be matched with bank credits.
• No TCS Deductions: Unlike marketplaces, no TCS is deducted here.
• Increased Control: You handle shipping and pricing, but also bear full responsibility for compliance, refund management, and inventory.

3. Hybrid Model (Marketplace + Website)

You sell through both marketplaces and your own website.

Accounting Impacts:

• Channel-wise GST Reporting: Each channel must be tracked and reported separately.
• Dual Reconciliation: Must reconcile both marketplace payouts and direct sales via payment gateways.
• Multi-source Inventory: Requires centralized inventory tracking to avoid overstocking or overselling.

4. Direct-to-Consumer (D2C) Private Label

You manufacture or brand your own products and sell directly, often via your own website.

Accounting Impacts:

• Customer Acquisition Costs: Heavy digital marketing spend requires tracking CAC vs. CLV (Customer Lifetime Value).
• Full Cycle Control: From inventory to shipping, the entire supply chain must be tracked.
• Deferred Revenue: If offering subscriptions or pre-orders, income must be recognized as per delivery schedule.

Dropshipping Model

You don’t hold inventory. When a customer places an order, the supplier ships directly to them.

Accounting Impacts:

• Simplified Inventory Accounting: No need to track physical stock.
• Revenue Recognition: Revenue is recognized upon product delivery.
• Import Compliance: If sourcing from overseas, IGST on imports must be paid and claimed as ITC.
• Narrow Margins: Accurate expense tracking is critical due to thin margins and high competition.

6. B2B / Wholesale Model

You sell in bulk to other businesses, often with credit terms.

Accounting Impacts:

• GST Invoicing with Buyer’s GSTIN: Mandatory for ITC eligibility.
• E-way Bills: Required for interstate transport above ₹50,000.
• Accounts Receivable Management: Track due dates, credit periods, and follow-ups for large invoices.

7. Subscription-Based Model (Recurring Billing)

Customers pay periodically (monthly/yearly) for a product or service.

Accounting Impacts:

• Deferred Revenue Recognition: As per Ind AS 115, recognize income over the subscription term, not upfront.
• GST on Advance Payments: Entire GST liability is triggered when payment is received, not when the service is rendered.
• Revenue Forecasting: Recurring revenue requires monthly MRR and ARR tracking for performance analysis.

8. Custom / Handmade Products

Products are made to order, often in small batches.

Accounting Impacts:

• Job Costing: Must calculate material, labour, and overhead costs for each order.
• Advance Payments: Recorded as liabilities until the product is shipped and revenue is recognized.
• Raw Material Inventory: Must be tracked separately from finished goods.

Essential Accounting Concepts for Ecommerce Businesses

Accrual Accounting vs. Cash Accounting

• Cash Accounting: Record revenue and expenses only when money physically moves (received or paid).
• Accrual Accounting: Record revenue when earned (goods shipped or services delivered), and expenses when incurred (used or consumed), regardless of cash flow timing.

For ecommerce businesses the accrual method is better. This is because of timing gaps—customers pay upfront, but delivery, returns, and fees occur later.

Cash accounting can distort profitability by recognizing income before related costs.

It is also required under Ind AS for companies above specified revenue thresholds

Revenue Recognition

Revenue is recognized when control transfers to the customer, the amount is measurable, and collectible.

Key Adjustments:

• Returns & Refunds: Estimate and reduce revenue at the time of sale
• Discounts & Commissions: Deduct from gross to arrive at net revenue
• Gift Cards: Initially a liability; revenue recognized upon redemption
• Subscriptions: Revenue recognized ratably over the service period

E-commerce Scenarios:

• Physical Goods: Revenue on shipment (risk transferred)
• Marketplace Sales: Net revenue = Gross – Commission – Shipping
• Pre-orders: Revenue deferred until delivery
• Bundles (Product + Service): Split revenue proportionally

Example:

• Amazon Sale: ₹10,000
• Less: ₹1,500 (Commission) + ₹500 (Shipping)
• Net Revenue: ₹8,000

Only ₹8,000 is recognized as revenue; the rest are expenses or reductions.

Cost of Goods Sold (COGS)

COGS is the total cost to bring your product to the customer. COGS determines gross profit and helps price products to maintain margins

COGS = Opening Inventory + Purchases + Freight-in + Duties – Closing Inventory

Includes:

• Product cost (what you pay the supplier)
• Shipping to your warehouse
• Import duties or customs charges
• Packaging (boxes, tape, labels)
• Platform-specific handling fees
• Payment gateway charges (sometimes included)

Example:

• Purchase price = ₹200 per unit
• Shipping = ₹20 per unit
• Customs duty = ₹10 per unit
• Packaging = ₹5 per unit
• Total COGS per unit = ₹235

Inventory Valuation & Accounting

Your chosen method directly impacts your balance sheet (value of inventory asset) and your P&L statement (COGS). You must be consistent in your method.

Methods: 

• FIFO (First In, First Out): Oldest stock sells first. Good for rising prices; lower COGS reported, higher profits.
• Weighted Average Cost: Average cost of all stock weighted by quantity. Smooths price volatility.

Accounts Receivable & Settlement Reconciliation

Marketplaces collect payments from customers, deduct fees, and remit balance after a lag (7-15 days or more).

Amounts not yet paid by the marketplace are Accounts Receivable.

Reconciliation steps:

• Match marketplace settlement reports to recorded sales and fees.
• Identify discrepancies in returns, fees, or chargebacks.
• Track aging of receivables; raise flags for delayed payments.

Example:

• Flipkart sales on March 1 = ₹50,000
• Flipkart commissions and fees = ₹5,000
• Flipkart pays ₹45,000 on March 10
• ₹5,000 remains as marketplace fee expense, ₹45,000 received cash, and ₹5,000 AR before receipt.

Accounts Payable (AP) 

It is the amount your ecommerce business owes to suppliers, service providers, and other vendors. It’s a liability on your balance sheet until you pay the bills.

AP items usually include payments to logistics, marketers, tech platforms.  Good AP tracking avoids late fees and improves cash flow

AP Best Practices

• Match invoices to purchase orders
• Negotiate better terms 
• Maintain vendor ledgers
• Schedule payments smartly
• Record accrued expenses monthly

Example:

When invoice is received:

• Debit: Inventory ₹50,000
• Credit: Accounts Payable ₹50,000

When payment is made:

• Debit: Accounts Payable ₹50,000
• Credit: Bank ₹50,000

Gross Profit vs. Net Profit 

• Gross Profit = Revenue – COGS. This shows profitability from core product sales.
• Net Profit = Gross Profit – Operating Expenses – Taxes. This is your “bottom line” after all business expenses.

It is important to differentiate between the two because ecommerce sellers often confuse high sales with profitability; high sales with high COGS or marketing costs can mean losses.

Implications:

• If Gross Profit is low or negative, your product pricing or sourcing strategy needs review.
• If Net Profit is low despite good Gross Profit, operational expenses might be too high.

Expense Tracking 

Tracking expenses helps you understand where money is being spent, what’s delivering return on investment (ROI), and where you can cut waste. 

It also ensures accurate financial reporting, tax compliance, and helps with better budgeting and forecasting

Some of the common expense categories include:

• Digital Marketing
• Marketplace Commissions
• Payment Gateway Fees
• Logistics & Shipping
• Packaging Costs
• Technology & Softwares
• Salaries & Contractors
• Rent & Utilities

Proper expense tracking ensures real profitability insights, helps optimize marketing spend and cut unnecessary costs, and provides inputs for cash flow forecasting.

Goods and Services Tax (GST) & Tax Accounting

Key Components for Ecommerce Sellers:

• Output GST: GST you charge on your sales (payable to the government).
• Input GST Credit (ITC): GST paid on your purchases and expenses which you can offset against output GST.
• Tax Collected at Source (TCS): Marketplaces collect 0.1% TCS on net sales and deposit it with the government. You get this as credit in your GST return.
• Place of Supply (POS): Determines if CGST+SGST (intra-state sale) or IGST (inter-state sale) applies.
• Reverse Charge Mechanism (RCM): You may have to pay GST directly on some purchases (e.g., import of services).

E-commerce sellers must collect GST from customers and show it clearly on the invoice.

GST paid on purchases and expenses (like packaging, logistics, marketplace fees) can be claimed as Input Tax Credit (ITC), ensuring you keep valid purchase invoices for this.

GST Challenges in E-commerce

• Many small suppliers don’t issue GST-compliant invoices, making ITC claims difficult
• Marketplace fees include GST, which must be claimed properly
• Stock transfers between warehouses in different states are treated as taxable supply
• Returns and cancellations require GST adjustments and proper documentation

Cash Flow Management 

Cash flow is the actual movement of money in and out of your business. 

 Even if your business shows profit on paper (due to accrual accounting), you can still run into cash problems if you don’t have enough liquid funds to pay your bills.

It’s important for ecommerce businesses

• Marketplaces often delay payments by 7–15 days.
• Refunds, returns, and chargebacks can reduce cash unexpectedly.
• Fixed costs like salaries, rent, and ads need timely payment.
• A cash buffer is essential to stay operational.

Break-Even Analysis 

It is the sales volume or revenue amount where total costs equal total revenues, resulting in zero profit but no loss.

For ecommerce businesses, it helps:

• Decide minimum sales to cover fixed and variable costs.
• Pricing, marketing, and scaling decisions.

Essential Financial Statements for Ecommerce Accounting 

An essential aspect of ecommerce accounting is ensuring accurate and timely financial statements. 

These are the essential financial statements every ecommerce business in India should maintain:

Profit and Loss Statement (P&L) / Income Statement

Summarizes your business’s financial performance over a specific period – monthly, quarterly, or annually. 

This statement tells you whether your business is profitable. It helps identify overspending, optimize margins, and assess performance trends over time.

Common line items for ecommerce include:

• Gross sales (from marketplaces and D2C websites)
• Platform fees and commissions
• Advertising costs (e.g., Meta Ads, Google Ads, Amazon PPC)
• Shipping and fulfillment charges
• Returns and refunds
• Overheads (salaries, software, rent, etc.)

Balance Sheet

Provides a snapshot of your company’s financial standing at a particular point in time. It outlines your assets, liabilities, and equity.

This report highlights your solvency, i.e. what your business owns vs. what it owes. Lenders, investors, and auditors often review the Balance Sheet to gauge financial stability.

Key components for ecommerce businesses:

• Assets: Inventory, cash in bank, accounts receivable, prepaid expenses
• Liabilities: Loans, GST payable, vendor dues, credit card balances
• Equity: Owner’s capital, retained earnings

Cash Flow Statement

Unlike the P&L, which includes non-cash items, the Cash Flow statement tracks actual cash movement in and out of your business. 

It helps ensure liquidity and avoid cash shortages, critical for day-to-day operations, especially in high-growth ecommerce environments.

It’s broken into three sections:

• Operating activities
• Investing activities
• Financing activities

Inventory Reports

Inventory is often the largest current asset for ecommerce businesses. 

Efficient inventory management prevents stockouts and overstocking, both of which affect profitability and cash flow. 

Inventory reports monitor:

• Current stock levels (by SKU or warehouse)
• COGS
• Inventory turnover rates
• Slow-moving or obsolete stock
• Reorder alerts and safety stock

Accounts Receivable (AR) and Accounts Payable (AP) Reports

• Accounts Receivable (AR): What’s owed to you, usually by marketplaces or customers
• Accounts Payable (AP): What you owe to suppliers, couriers, marketing platforms, or software vendors

Tracking receivables ensures you’re collecting payments on time. Managing payables helps you negotiate better terms and maintain positive supplier relationships.

Tax Compliance and GST Reports

 Accurate tax filing avoids penalties, enables input tax credit claims, and ensures statutory compliance under Indian regulations.

Common tax reports include:

• GST input and output reconciliation
• TDS and TCS summaries
• Sales summaries by GSTIN
• HSN-wise tax breakdowns

Why Having Professional Help Matters for Ecommerce Businesses 

Ecommerce accounting can quickly become complex as your business grows and diversifies. 

This is when you must consider help. Professional Ecommerce accountants help with: 

• Compliance: Avoid penalties and audits with correct GST, TCS, and tax filings.
• Accuracy: Minimize errors in reconciliation, tax, and financial reporting.
• Efficiency: Automate and streamline accounting processes.
• Insight: Get actionable reports on profitability, cash flow, and growth drivers.
• Time Saving: Focus on growing your business, not bookkeeping.
• Scalability: Accounting systems that grow with your business.
• Credibility: Professional financial statements increase investor and lender confidence.

Bookkeeping & Accounting Best Practices We Adopt at PKC  for Ecommerce Businesses

At PKC, we’ve mastered the complexities of e-commerce bookkeeping to keep your finances accurate, compliant, and growth-ready:

Smart Automation That Works

No more manual data entry. Our systems integrate directly with Shopify, Amazon, Flipkart, WooCommerce, and more.

• Every sale, refund, and fee is recorded automatically
• Real-time inventory updates your COGS
• Instantly see if that flash sale was profitable

Clarity Across All Sales Channels

Selling on Amazon, your own site, and social media? We track each platform separately, so you always know:

• Platform-specific performance
• Channel-wise fees and commissions
• True profit margins after all costs
• Your best revenue sources

Cash Flow You Can Count On

Payment holds, seasonal dips, and returns can make cash flow messy. We simplify it with:

• Weekly cash flow forecasts
• Adjustments for payment delays and returns
• Tax and growth capital set aside
• Emergency reserves for peak season

Tax Compliance, Handled End-to-End

We take the stress out of GST, TCS, and multi-state compliance. Our systems ensure:

• Accurate tax calculation per location/product
• GST return filing and reconciliation
• International compliance readiness
• Complete audit documentation

Inventory That’s Always in Sync

Your profits depend on accurate inventory valuation. We apply FIFO or weighted average costing and handle:

• Monthly inventory reconciliations
• Write-offs for damaged/obsolete stock
• Real-time COGS tracking

Insights That Drive Growth

Skip the confusing reports. Our dashboards give you:

• Customer Acquisition Cost (CAC)
• Lifetime Value (LTV)
• Channel-wise conversion rates
• Monthly profit trends

Everything is visual, clear, and built to help you grow smarter.

Ready to simplify your ecommerce finances? Get in Touch Today!

FAQs on Ecommerce Accounting