Your Real Profit Per Order: After Fees, GST, TCS, TDS and Returns

Your profit on an order is the price before GST, minus marketplace fees, shipping, packing, product cost and a share for returns. GST is not income. TCS and TDS are not costs. In the example below, an order sold at Rs 1,180 leaves Rs 285 before returns and about Rs 188 after them.

Why does the settlement amount mislead you?

You sell something for Rs 1,180 and Rs 938 lands in your bank. Did you make Rs 938? No. Did the marketplace take Rs 242? Also no.

That one credit mixes four different things: your real income, GST you are only holding for the government, the marketplace's charges, and taxes paid in advance on your behalf. To see profit you have to pull them apart. It takes ten minutes for one order, and once you have done it for one, you can do it for a month.

The numbers used here

Every figure below is an illustration. The fee amounts are round examples chosen for easy arithmetic. They are not the rate of Amazon, Flipkart, Meesho or anyone else. Take your real fees from your own rate card or settlement report.

• Price paid by the buyer: Rs 1,180, including 18% GST.
• Marketplace fees: commission Rs 118 (10% of the price, as an example), fixed fee Rs 22, shipping fee Rs 60. Total Rs 200.
• Product bought for Rs 590, which is Rs 500 plus Rs 90 GST, on a proper tax invoice.
• Packing material: Rs 15.
• You are registered for GST and file regular returns.

Work it out, step by step

1. Take the GST out of the price. Rs 1,180 x 18 / 118 = Rs 180. Your sale, called the taxable value, is Rs 1,000. The Rs 180 was never yours.
2. List the marketplace fees. Rs 200 in this example. This is a real cost.
3. Add GST on the fees. 18% of Rs 200 = Rs 36. The marketplace deducts it, but it gives you a tax invoice, and you claim the Rs 36 as input tax credit. That is credit for GST you paid on business expenses. So it is not a cost, as long as you claim it.
4. Note the TCS. Tax collected at source under GST: 0.5% of Rs 1,000 = Rs 5. It goes to your cash ledger on the GST portal once you accept it.
5. Note the TDS. Tax deducted at source under income tax: 0.1% of Rs 1,180, about Rs 1. It shows in your Form 26AS and reduces your income tax.
6. Subtract product cost. Rs 500. The Rs 90 GST on the purchase is input tax credit, not cost.
7. Subtract packing. Rs 15.
8. Set aside something for returns. See the section on returns below.

The whole order in one table

Cash received is not profit: the proof

Follow the money and see if it agrees.

• Bank credit from the marketplace: Rs 1,180 - 200 - 36 - 5 - 1 = Rs 938.
• Paid to your supplier: Rs 590. Packing: Rs 15.
• GST to pay: Rs 180 collected, less credit of Rs 36 on fees and Rs 90 on the purchase = Rs 54. The Rs 5 TCS is already in your cash ledger, so you deposit Rs 49.
• Cash left: 938 - 590 - 15 - 49 = Rs 284.
• Add the Rs 1 of TDS you will set off against income tax: Rs 285.

It matches. The Rs 938 looked like income, but Rs 653 of it was already spoken for. This is also why a seller can have money in the bank on the 10th and be short on the 20th, when GSTR-3B (the return where GST is paid) falls due. Keep the GST portion aside as it comes in.

What do returns and RTO do to this?

A customer return is a delivered order sent back. RTO, return to origin, is a parcel the courier could not deliver. In both, the sale is reversed and the GST with it. What stays with you is the cost of the round trip.

What the marketplace charges on a returned order differs from one platform to another and between a customer return and an RTO. Check your own settlement lines. For the illustration, assume:

• 20 of every 100 orders shipped come back.
• Each one costs you Rs 150 in shipping both ways and repacking.
• 1 in 10 returned pieces cannot be sold again, a loss of Rs 500 on that piece, or Rs 50 averaged over each return.

So each returned order costs Rs 200. Over 100 orders shipped:

• 80 delivered x Rs 285 = Rs 22,800
• 20 returned x Rs 200 = Rs 4,000
• Profit = Rs 18,800, which is Rs 188 per order shipped.

The return allowance here is Rs 97 an order, a third of the profit you thought you had. For how returned orders reduce your GST, read sales returns in GSTR-1 for online sellers.

Three mistakes that hide your real profit

1. Counting GST as income. Working margins on Rs 1,180 in place of Rs 1,000 overstates this sale by 18%. Always strip the GST first.

2. Treating credits as costs, and then not claiming them. GST on fees, TCS and TDS add up to Rs 42 on this order. They are yours only if you act: claim the fee invoices as input tax credit in GSTR-3B, accept TCS on the GST portal each month, and claim TDS in your income tax return. Unclaimed, they turn into real costs. If you are not registered for GST, the Rs 36 on fees is a cost from the start.

3. Leaving out returns. A product that earns Rs 285 on paper and Rs 188 after returns may not survive a discount or an ad campaign. Use the after-returns figure when you decide price, discounts and ad spend.

What is still missing?

Three things, on purpose. Ad spend, which you should divide over the orders it brought. Your overheads such as rent, salaries and software. And income tax on the year's profit. The Rs 188 is what one order contributes towards these. Do this sum once for each of your top five products. If any of them comes out thin, change the price or drop it.

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