One of the most common pricing mistakes on Amazon India is confusing bank settlement cash with net contribution profit. Sellers look at the payout transferred to their bank account, subtract the invoice price they paid their supplier, and assume the remainder is what they earned.
In reality, that calculation mixes up five separate tax buckets: Output GST collected from the customer, Purchase GST inside your product cost (COGS), 18% Service GST on Amazon’s fees and ads, 0.5% GST TCS (Tax Collected at Source), and 0.1% Section 194-O TDS (Tax Deducted at Source). Getting any one of those wrong can make a 23% margin SKU look like a 12% margin SKU—or make a loss-making listing look cash-positive until GSTR-3B filing day.
1. Worked example: a ₹1,200 order side by side
Consider a Home Decor product listed at ₹1,200 (inclusive of 18% product GST), shipped via Easy Ship (450 g, Standard STEP). You bought the item for ₹472 inclusive of 18% GST (₹400 base cost + ₹72 purchase GST), and you spend ₹0 on ads with 0% returns for simplicity:
| Line Item | Bank Settlement (Cash Flow) | Contribution Profit (ITC Claimed) | Profit if ITC is NOT Claimed |
|---|---|---|---|
| Customer selling price | ₹1,200.00 | ₹1,016.95 (ex-GST revenue) | ₹1,016.95 (ex-GST revenue) |
| Output GST (18% in price) | Still inside ₹1,200 | Excluded (₹183.05 owed to govt) | Excluded (₹183.05 owed to govt) |
| Referral fee (17% of ₹1,200) | −₹204.00 | −₹204.00 | −₹204.00 |
| Easy Ship closing fee (>₹1,000) | −₹79.00 | −₹79.00 | −₹79.00 |
| Easy Ship weight handling (450 g) | −₹55.00 | −₹55.00 | −₹55.00 |
| 18% GST on Amazon fees (₹338 × 18%) | −₹60.84 | ₹0.00 (claimed as ITC) | −₹60.84 (treated as cost) |
| 0.5% GST TCS (on ₹1,016.95) | −₹5.08 | ₹0.00 (Electronic Cash Ledger) | ₹0.00 (recoverable) |
| 0.1% Section 194-O TDS | −₹1.05 | ₹0.00 (Form 26AS credit) | ₹0.00 (recoverable) |
| Product COGS (₹472 incl. 18% GST) | Paid to supplier outside Amazon | −₹400.00 (₹72 ITC removed) | −₹472.00 (full landed cost) |
| Final Result | ₹795.03 bank transfer | +₹278.95 profit (23.2% margin) | +₹146.11 profit (12.2% margin) |
2. Why ₹795.03 in your bank is not ₹795.03 of profit
When Amazon transfers ₹795.03 to your bank account for this ₹1,200 order, three adjustments still have to happen outside Seller Central:
- You haven’t paid Output GST yet: The customer paid ₹1,016.95 for the product and ₹183.05 in 18% Output GST. Amazon passes that ₹183.05 to you inside the settlement so you can remit it in GSTR-3B.
- Amazon deducted ₹60.84 in fee GST that you get back: Amazon charged 18% GST on its ₹338 of service fees (referral ₹204 + closing ₹79 + shipping ₹55 = ₹338). Because Amazon reports this B2B invoice in GSTR-1, it appears in your GSTR-2B and directly reduces the cash you pay towards your ₹183.05 Output GST.
- Your purchase GST (₹72.00) also offsets Output GST: Buying the product at ₹472 inclusive of 18% GST gives you another ₹72.00 of Input Tax Credit. Together with the ₹60.84 fee GST credit and ₹5.08 TCS, your net cash GST payable to the government on this order is only ₹45.13 (₹183.05 − ₹72.00 − ₹60.84 − ₹5.08).
3. Reconciling bank payout to true profit to the paisa
You can prove that the cash ledger and the profit ledger reconcile to the exact paisa:
| Step | Amount | Why it moves |
|---|---|---|
| Amazon bank transfer received | +₹795.03 | Cash deposited by Amazon |
| Less: Supplier invoice paid (incl. 18% GST) | −₹472.00 | ₹400 base product + ₹72 purchase GST |
| Less: Net GST cash paid in GSTR-3B | −₹45.13 | ₹183.05 Output GST − ₹72 purchase ITC − ₹60.84 fee ITC − ₹5.08 TCS |
| Plus: Section 194-O income-tax TDS credit | +₹1.05 | Credited in Form 26AS against your annual tax |
| Net Economic Profit Left in Your Pocket | +₹278.95 | Matches Contribution Profit (23.2% of ₹1,200) |
4. What changes if you cannot claim ITC on purchases or fees?
Not every seller can claim both credits. For example, a seller buying from an unregistered local artisan has no GST tax invoice for the product cost, even though they have a GSTIN registered on Amazon and can still claim ITC on Amazon’s fee invoice. That is why the profit calculator gives you two independent ITC checkboxes:
- Claim ITC on purchase GST (inside Card #1, under Product cost): Turn this ON when your supplier gives you a compliant B2B GST invoice. Turn it OFF when buying from unregistered vendors or importing without recoverable IGST credit.
- Claim ITC on Amazon fee GST and advertising GST (inside Packaging, ads & returns): Keep this ON as a regular GST-registered seller with your GSTIN in Seller Central. Turn it OFF only if you cannot utilize GST credits on services.
As shown in the table above, losing both credits on a ₹1,200 order drops profit from ₹278.95 (23.2% margin) down to ₹146.11 (12.2% margin)—a ₹132.84 per-order swing. Test both scenarios on your own SKU in the free Amazon India profit and settlement calculator.