GST and Input Tax Credit for marketplace sellers

Ask a seller what their margin is and you will usually get a number that quietly includes an error about GST. It is the single most common mistake in ecommerce profit maths, it is made by nearly every free calculator online, and it is made in both directions at once — which is why it survives so long unnoticed.

This guide sets out the correct treatment, with the arithmetic shown.

GST is not your money at any point

When you list a product at ₹499, that price includes GST. The customer pays ₹499; a portion of it was never yours. You are collecting it on behalf of the government and you will remit it.

So the first thing to do with a selling price is take the GST back out of it:

₹422.88 is your revenue. Not ₹499. Every cost you subtract from here on is subtracted from ₹422.88.

This is also why "I sell at ₹499 and it costs me ₹200, so I make ₹299" is wrong before any marketplace fee is even considered. The gross margin on that order is ₹222.88, not ₹299 — a 25% overstatement that exists purely in the seller's head.

Marketplace fees carry GST, and you get it back

Amazon, Flipkart and Meesho all charge 18% GST on their own fees. A ₹100 referral fee is billed to you at ₹118.

That looks like an 18% surcharge on everything the marketplace charges you, and plenty of sellers budget for it that way. It isn't one. If you are GST-registered, the GST on your marketplace fees is a business input, and you can claim it as Input Tax Credit — it comes off what you owe the government at filing time.

The fee itself is a real cost. The GST on the fee is not.

The mistake: counting it twice

Here is how calculators get it wrong, and why the error is easy to miss.

They correctly back GST out of the selling price to get taxable value. Then, further down the sheet, they also subtract "GST payable" as a line item of cost. But the GST was already excluded when they computed taxable value. Subtracting it again removes the same money twice.

We are confident about this figure because we shipped the bug ourselves. An early version of our engine double-counted exactly this way and understated profit by about ₹136 an order. Fifty-nine hand-written test assertions passed it, because every one of them had been written by someone holding the same wrong assumption as the code.

What caught it was a test of a different kind: profit must be identical at 5%, 12%, 18% and 28% GST. If changing the tax rate changes the profit, GST is being treated as a cost somewhere. That test is now permanent. The whole approach is written up in our methodology.

What you actually remit

Your GST liability on an order is the GST you collected, minus the ITC you can claim:

This is a real number and it matters — but it is a cash-flow figure, not a profit figure. It tells you what leaves your bank account at filing time. It does not tell you what the order earned, because ₹58.84 of the money involved was never yours to earn.

Our calculator reports net GST payable separately for exactly this reason: you need to know it to manage cash, and you must not subtract it to work out margin.

Your GST rate barely affects your profit

This surprises people, and it's a useful sanity check on any calculator you use.

If you sell the same product at the same price under 5% GST or 28% GST, your profit is the same. A higher GST rate means a smaller taxable value, but it also means proportionally more of the price was never yours. The two move together.

What the GST rate does change is your pricing headroom. At 28% GST, a ₹499 sticker price leaves you ₹389.84 of revenue instead of ₹422.88 at 18%. If you want the same margin, you need a higher price. The rate affects what you must charge, not what you keep at a given charge.

If you are not GST-registered

Everything above assumes you are registered and can claim ITC. If you aren't:

• You cannot reclaim the GST on marketplace fees. It becomes a genuine 18% surcharge on every fee you pay.
• Amazon and Flipkart require GST registration for most categories anyway. Meesho allows unregistered sellers in some cases.
• Your effective fee burden is meaningfully higher than a registered seller's on the same product at the same price — which is worth knowing before you conclude a competitor is undercutting you irrationally.

This is one of the places where "what does it cost to sell here" genuinely has a different answer for different sellers, and no calculator can tell you which answer is yours.

The short version

• Divide your selling price by (1 + GST rate). That, not the sticker price, is your revenue.
• Subtract marketplace fees excluding their GST — you get that GST back as ITC.
• Never subtract GST payable from profit. It was already excluded.
• Report net GST payable separately, as cash flow.
• If changing the GST rate changes your profit, something is wrong.

None of this is exotic accounting; it is just the difference between revenue and receipts. But it is applied wrongly often enough that a seller comparing two calculators can get answers ₹76 apart on a ₹499 order and have no way to tell which one to believe.