01 — Definition & Concept
What is a Sales Discount in E-Commerce?
A sales discount is a reduction in the selling price offered by a business to its customers — either to incentivise quick payment, drive sales volumes, or as part of a promotional campaign. In e-commerce, discounts take many forms: coupon codes, flash sale reductions, platform-funded offers, cashback deals, and loyalty rewards. Accounting for these discounts correctly is critical because each type has a different journal entry treatment and different implications under GST.
2
Types that matter: Trade Discount (not recorded) and Cash Discount (always recorded)
Dr=Cr
Every discount journal entry must balance — Discount Allowed A/c is debited as an expense
P&L
Discount Allowed flows to Profit & Loss Account — it reduces the seller's net profit
GST
Pre-supply discounts reduce taxable value; post-supply discounts need a credit note under GST
Net Sales
=
Gross Sales
−
Sales Discounts & Allowances
REVENUE EQUATION — Sales Discounts reduce the top-line revenue reported in the Profit & Loss Account
📌 The Core Idea: In e-commerce, the seller often shows a "crossed-out MRP" and a lower "offer price." From an accounting standpoint, if this is a trade discount, the journal entry is simply passed for the offer price — no separate discount entry is needed. If the seller later allows a customer to pay less (for early payment or settlement), that is a cash discount and must be recorded separately as Discount Allowed A/c (Dr) — a nominal account expense.
✅ Why Does It Matter? Incorrect treatment of discounts leads to overstated revenue, wrong GST liability, and an inaccurate Profit & Loss Account. For e-commerce sellers on platforms like Amazon, Flipkart, Meesho, or their own Shopify store, understanding whether a discount is seller-funded or platform-funded determines who books the discount expense in their accounts.
02 — Trade Discount vs Cash Discount
Trade Discount vs Cash Discount — Key Differences
Before passing any journal entry for a discount, you must identify which type of discount it is. The accounting treatment is completely different. Trade discounts are never recorded in the books; cash discounts always are. Here is the full comparison.
🏷️ Trade Discount
DEDUCTED AT INVOICE STAGE — NOT RECORDED
A reduction given at the time of the sale itself — before the invoice is raised. It is a price negotiation mechanism. In e-commerce, this is the "50% off" shown on the product listing page. The invoice is raised for the net amount only (MRP minus discount). No separate journal entry is ever passed for trade discount. The books simply show the discounted price as the sale value.
✓ Not recorded in books. Invoice = Net Amount only.
💰 Cash Discount (Settlement Discount)
RECORDED AS EXPENSE — DISCOUNT ALLOWED A/C
A reduction offered to a customer who pays early or settles their account before the due date. In e-commerce B2B, this might be "2/10 net 30" — 2% discount if paid within 10 days. The original invoice is raised for the full amount. When the customer pays the discounted amount in full settlement, the discount is recorded as Discount Allowed A/c (Dr) — a nominal account that appears as an expense in the P&L Account.
✓ Recorded as: Dr Discount Allowed | Cr Debtor A/c
| Feature | Trade Discount | Cash / Settlement Discount |
|---|---|---|
| When Given | At the time of sale — on the invoice itself | After the sale — when customer pays early |
| Recorded in Books? | ❌ No — NOT recorded separately | ✅ Yes — always recorded |
| Account Used | No separate account — invoice shows net amount | Discount Allowed A/c (Nominal — Expense) |
| Effect on GST | Reduces taxable value (deducted before GST) | Generally no effect on GST already paid |
| P&L Impact | Reduces gross sales (never shown separately) | Shown as a separate expense — reduces profit |
| E-Commerce Example | ₹1,000 MRP product sold at ₹700 on Flipkart listing | B2B buyer given 2% off for paying invoice early |
| Journal Entry | Dr Cash/Bank ₹700 | Cr Sales A/c ₹700 | Dr Bank ₹700 + Dr Discount Allowed ₹14 | Cr Debtor ₹714 |
03 — Types of E-Commerce Discounts
Types of Discounts in E-Commerce & How to Account for Each
E-commerce businesses encounter a wide variety of discount mechanisms — from simple flat-rate coupons to complex platform-funded promotional campaigns. Each type requires careful classification before you can pass the correct journal entry. Here is how each discount type is categorised and treated.
Flat Percentage / MRP Discount
The product is listed at a discount from MRP (e.g., "30% off"). This is a trade discount. Invoice is raised for the discounted price. No separate discount account is used.
Dr Cash ₹700 | Cr Sales ₹700 (not ₹1,000)
Coupon Code Discount
Customer applies a coupon at checkout reducing the price. If seller-funded, record as Discount Allowed (expense). If platform-funded, record platform credit as income separately.
Dr Bank ₹850 + Dr Discount Allowed ₹150 | Cr Sales ₹1,000
Platform-Funded Discount
Amazon/Flipkart funds the discount (e.g., during Big Billion Day). Seller receives full price from platform. Platform reimbursement is income for the seller, not a discount expense.
Dr Bank ₹1,000 | Cr Sales ₹1,000 (full amount received)
Bank / Wallet Cashback
Cashback funded by a bank or payment wallet (e.g., 10% off with HDFC card). The seller receives the full price from the payment gateway. No entry is required by the seller for this discount.
Dr Bank ₹1,000 | Cr Sales ₹1,000 (no discount entry needed)
Loyalty Points / Reward Redemption
Customer redeems loyalty points to reduce the payable amount. Points redeemed are a deferred revenue liability being settled. Record the liability reduction and the actual cash received.
Dr Bank ₹800 + Dr Loyalty Points Liability ₹200 | Cr Sales ₹1,000
Post-Sale Price Adjustment
A price reduction granted after the original sale (e.g., price match guarantee). This requires a credit note to the customer, a sales returns/allowance entry, and a GST credit note if applicable.
Dr Sales Allowances ₹200 | Cr Debtor A/c ₹200
04 — Journal Entry Examples
10 Complete Journal Entry Examples — E-Commerce Sales Discounts
The following examples cover the most common discount scenarios encountered by Indian e-commerce businesses. Each entry is explained with the accounts affected, golden rules applied, and the correct narration. All entries follow double-entry bookkeeping under Indian accounting standards.
CASE STUDY — ZEROLEV SHOP (E-COMMERCE SELLER)
Business Scenario: Online Store with Multiple Discount Types
Zerolev Shop is a D2C e-commerce brand selling electronics on its own website and through Amazon India. During April 2026, the business runs various discount schemes. We will pass a correct journal entry for each scenario, applying the appropriate golden rules.
Entry 1: Cash Sale ₹1,000 After Trade Discount of 20% — Net Sale ₹800 (No GST for simplicity)Real A/c + Nominal A/c — Trade Discount (Not Recorded)
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Cash A/c | Dr | 800 | — |
| To Sales A/c | Cr | — | 800 |
| Total | 800 | 800 | |
Trade Discount of ₹200 is NOT recorded in the books. The invoice is raised for the net amount ₹800 only. Cash A/c (Real) — Debit what comes in. Sales A/c (Nominal) — Credit all incomes and gains. The discount of ₹200 never appears in any account — it is simply a price negotiation. Narration: Being cash sale of goods at ₹800 net of 20% trade discount, as per Invoice No. ZS-001.
Entry 2: Credit Sale ₹5,000 to B2B Buyer — Cash Discount of ₹250 Allowed on Early Payment of ₹4,750Personal A/c + Nominal A/c — Discount Allowed (Cash Discount)
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bank A/c | Dr | 4,750 | — |
| Discount Allowed A/c | Dr | 250 | — |
| To Debtor / Customer A/c | Cr | — | 5,000 |
| Total | 5,000 | 5,000 | |
Compound entry. Bank receives ₹4,750 (Dr — Real A/c, what comes in). Discount Allowed ₹250 (Dr — Nominal A/c, debit all expenses and losses). Customer's debtor account ₹5,000 fully cleared (Cr — Personal A/c, debit the receiver, credit the giver — customer was the giver of money). Discount Allowed appears in P&L Account as an expense, reducing net profit. Narration: Being ₹5,000 invoice settled by customer with ₹250 cash discount allowed for early payment, Bank Ref: NEFT2604001.
Entry 3: Online Sale ₹2,000 with 10% Seller-Funded Coupon Code SAVE10 — Customer Pays ₹1,800 via Payment GatewayReal A/c + Nominal A/c — Coupon Discount (Seller-Funded)
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bank / Payment Gateway A/c | Dr | 1,800 | — |
| Discount Allowed A/c | Dr | 200 | — |
| To Sales A/c | Cr | — | 2,000 |
| Total | 2,000 | 2,000 | |
When the seller funds the coupon, gross sales ₹2,000 are recorded to reflect true revenue, with Discount Allowed ₹200 as a separate expense. This is best practice — it shows the full revenue earned and the cost of the promotion separately. Alternative treatment: record net sales at ₹1,800 (simpler but hides marketing cost). Bank A/c (Real) — Debit what comes in. Discount Allowed A/c (Nominal) — Debit expense. Sales A/c (Nominal) — Credit income. Narration: Being online sale with 10% seller-funded coupon SAVE10 applied, per Order No. ZS-002.
Entry 4: Amazon India Platform-Funded Discount — Seller Receives Full ₹3,000 MRP from Amazon Despite Customer Paying ₹2,400Real A/c + Nominal A/c — Platform-Funded Discount (No Expense for Seller)
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Amazon Receivable / Bank A/c | Dr | 3,000 | — |
| To Sales A/c | Cr | — | 3,000 |
| Total | 3,000 | 3,000 | |
When Amazon funds the discount (common during Great Indian Festival / Prime Day), the seller receives the full selling price from Amazon. The ₹600 discount is Amazon's cost — the seller records NO Discount Allowed. The seller's journal shows full sales at ₹3,000. Amazon then deducts its commission from this before settlement. The seller records Amazon Commission separately as an expense. Narration: Being sale on Amazon India at MRP ₹3,000, platform-funded discount of ₹600 (seller not liable), per Amazon Order ID: 405-XXXXX.
Entry 5: GST-Inclusive Sale ₹1,18,000 with Trade Discount 10% — Net Sale ₹1,06,200 (GST @18% on ₹90,000)Nominal A/c + Real A/c — E-Commerce Sale with GST & Trade Discount
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bank / Payment Gateway A/c | Dr | 1,06,200 | — |
| To Sales A/c | Cr | — | 90,000 |
| To CGST Payable A/c | Cr | — | 8,100 |
| To SGST Payable A/c | Cr | — | 8,100 |
| Total | 1,06,200 | 1,06,200 | |
MRP ₹1,00,000. Trade Discount 10% = ₹10,000. Net taxable value = ₹90,000. CGST @9% = ₹8,100. SGST @9% = ₹8,100. Total invoice ₹1,06,200. Trade discount is deducted before computing GST — this is the correct treatment under Section 15(3)(a) of the CGST Act. GST is computed on the net amount, not the MRP. Trade discount ₹10,000 is NOT recorded anywhere in the books. Narration: Being cash sale after 10% trade discount with GST @18%, per Tax Invoice No. ZS-005.
Entry 6: Customer Redeems ₹500 Loyalty Points Against ₹3,500 Purchase — Pays Balance ₹3,000 by UPIPersonal A/c + Real A/c — Loyalty Points Redemption
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bank / UPI A/c | Dr | 3,000 | — |
| Customer Loyalty Points Liability A/c | Dr | 500 | — |
| To Sales A/c | Cr | — | 3,500 |
| Total | 3,500 | 3,500 | |
When loyalty points are initially issued to customers, they are recorded as: Dr Sales A/c (or Dr Marketing Expense) | Cr Customer Loyalty Points Liability A/c. When redeemed, the liability is settled by debiting the Loyalty Points Liability A/c. Bank A/c (Real) — Debit what comes in. Loyalty Points Liability (Personal) — Debit what is owed being cleared. Sales A/c (Nominal) — Credit total income. Narration: Being ₹3,500 sale, ₹500 settled by loyalty point redemption and ₹3,000 paid via UPI, per Order No. ZS-006.
Entry 7: Post-Sale Price Adjustment — Customer Claims ₹300 Price Match Guarantee on ₹2,000 SaleNominal A/c + Personal A/c — Sales Allowance (Post-Sale Discount)
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Sales Allowances A/c | Dr | 300 | — |
| To Customer Refund Payable A/c | Cr | — | 300 |
| Total | 300 | 300 | |
Sales Allowances A/c is a contra-revenue account (like Sales Returns) — it is presented as a deduction from Gross Sales in the P&L Account. When the refund is actually paid: Dr Customer Refund Payable A/c | Cr Bank A/c ₹300. Under GST, a credit note must be issued if the original invoice included GST, reducing the seller's output tax liability. Narration: Being price match adjustment of ₹300 on Order No. ZS-003, credit note CN-001 issued.
Entry 8: Flipkart Settlement Statement — Gross Sale ₹10,000, Platform Commission ₹1,500, Seller-Funded Discount ₹500, Net Settlement ₹8,000Personal A/c + Nominal A/c — Marketplace Settlement Entry
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bank A/c (Net Settlement) | Dr | 8,000 | — |
| Flipkart Commission Expense A/c | Dr | 1,500 | — |
| Discount Allowed A/c | Dr | 500 | — |
| To Sales A/c | Cr | — | 10,000 |
| Total | 10,000 | 10,000 | |
Best practice for marketplace sellers: record GROSS sales ₹10,000 and all deductions separately. This gives an accurate picture of revenue vs costs. Flipkart Commission is a selling expense (Nominal A/c). Discount Allowed is a separate marketing expense (Nominal A/c). Bank receives the net settlement. Never record only ₹8,000 as "net sales" — this hides the cost structure. Narration: Being Flipkart weekly settlement — gross sales ₹10,000, commission ₹1,500, seller-funded discount ₹500, net settled ₹8,000, per Settlement Report Week 17.
Entry 9: Buy 2 Get 1 Free Promotion — 3 Units Sold, Customer Pays for Only 2 Units at ₹1,200 EachReal A/c + Nominal A/c — BOGO / Volume Discount
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bank / UPI A/c | Dr | 2,400 | — |
| Discount Allowed / Sales Promotion Expense A/c | Dr | 1,200 | — |
| To Sales A/c | Cr | — | 3,600 |
| Total | 3,600 | 3,600 | |
Three units sold at MRP ₹1,200 each = Gross Sales ₹3,600. Customer pays for 2 units = ₹2,400. One free unit cost ₹1,200 is recorded as Sales Promotion Expense or Discount Allowed (either is acceptable; Sales Promotion Expense is more descriptive for management accounts). Inventory must also be updated — reduce stock by 3 units, not 2. GST: compute on the consideration paid (₹2,400) unless invoice specifies free unit — check GST Rules 27 for related party / free supply treatment. Narration: Being Buy 2 Get 1 Free promotion sale, 3 units despatched, ₹2,400 received, per Order ZS-009.
Entry 10: Discount Received from Supplier on Own E-Commerce Purchases — ₹2,000 Discount on ₹20,000 PurchasePersonal A/c + Nominal A/c — Discount Received (Income)
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Creditor / Supplier A/c | Dr | 20,000 | — |
| To Bank A/c | Cr | — | 18,000 |
| To Discount Received A/c | Cr | — | 2,000 |
| Total | 20,000 | 20,000 | |
When the e-commerce business itself receives a discount from its own supplier for early payment, the entry is reversed: Creditor A/c (Personal) is debited for the full amount. Bank A/c (Real) — credited for cash paid. Discount Received A/c (Nominal) — credited as income (Credit all incomes and gains). Discount Received appears in the P&L Account as an income item — it increases profit. Narration: Being supplier invoice ₹20,000 settled at ₹18,000 with ₹2,000 discount received for early payment, per Supplier Credit Note CN-SUP-004.
05 — GST Treatment on Sales Discounts
GST Treatment on Sales Discounts — E-Commerce Rules
Under Indian GST law, the treatment of discounts on the taxable value depends entirely on when the discount is given and whether it is mentioned on the invoice. Getting this wrong means computing GST on an incorrect base — leading to excess payment or underpayment of tax. Here are the key GST rules for e-commerce discounts.
-
Pre-Supply Discount — Deductible from Taxable ValueUnder Section 15(3)(a) of the CGST Act 2017, discounts given before or at the time of supply can be deducted from the taxable value, provided they are clearly stated on the invoice. Example: A product with MRP ₹1,000 sold at ₹700 (30% trade discount) — GST is charged on ₹700, not ₹1,000. This is the most common scenario in e-commerce product listings.
-
Post-Supply Discount — Credit Note RequiredDiscounts given after the supply (e.g., price match adjustments, post-delivery promotions) can be adjusted against GST only if: (a) they are established under a pre-existing agreement, (b) they are linked to the original invoice, and (c) the recipient reverses the input tax credit attributable to the discount (Section 15(3)(b) CGST Act). The seller must issue a GST Credit Note to adjust the output tax liability. Failing to do so means paying GST on the original amount even after the discount is given.
-
E-Commerce Operator TCS — Not Affected by DiscountsUnder Section 52 of the CGST Act, e-commerce operators (Amazon, Flipkart, Meesho) must collect TCS (Tax Collected at Source) @0.5% CGST + 0.5% SGST on net taxable supplies. TCS is computed on the net value of taxable supplies after returns. Importantly, discounts that reduce the invoice value also proportionally reduce the TCS base. Sellers must reconcile TCS credits in GSTR-8 filed by the platform against their GSTR-2A/2B.
-
Bank Cashback and Wallet Discounts — Not Subject to GSTBank-funded cashbacks (e.g., 10% off with SBI credit card) or payment wallet promotions (e.g., Google Pay cashback) are not seller discounts — they are marketing expenses incurred by the bank or wallet company. The seller charges and collects full GST on the original invoice amount. The cashback is a separate transaction between the bank and the customer — it does not reduce the seller's taxable value or create any GST credit note obligation.
-
Free Goods in Promotions — Deemed Supply Under GSTUnder GST, supply of goods even without consideration can be a "deemed supply" if made in the course of business. Buy-one-get-one-free offers may attract GST on the free item's market value under certain conditions. However, CBIC Circular No. 92/11/2019-GST clarified that "buy one get one free" type offers (where the invoice mentions both items) can be treated as a discounted supply — GST is charged on the actual consideration paid, provided the discount is mentioned on the invoice and linked to the supply.
⚠️ GST Compliance Warning: Under Section 34 of the CGST Act, a credit note for post-supply discounts must be issued by the 30th of November following the end of the financial year in which the supply was made, or the date of filing the annual return, whichever is earlier. If this window is missed, the seller cannot reduce their GST output liability for that discount — resulting in excess tax paid. E-commerce businesses with high return and discount rates must track credit notes rigorously.
06 — Platform-Specific Accounting
How to Account for Discounts on Major E-Commerce Platforms
Each major e-commerce platform in India has a different settlement structure, fee arrangement, and discount-funding model. Here is how sellers should approach journal entries for discounts on the most commonly used platforms.
Amazon India
Platform-funded deals (Lightning Deals, Prime Exclusive) — seller receives full price, no discount entry needed. Seller-funded coupons — Discount Allowed A/c. Commission deducted before settlement — record as Selling Fees Expense.
Flipkart
Big Billion Day often involves platform-funded discounts. Settlement statements show gross sales minus all charges. Always record gross sales and deduct commissions + seller discounts separately for accurate P&L reporting.
Meesho
Meesho charges zero commission but has its own promotional pricing. Discounts are generally built into the listing price (trade discount model). Record net sales price as invoiced. Shipping credits received are miscellaneous income.
Own Website (Shopify/WooCommerce)
Full control over discount tracking. Coupon codes are seller-funded — record as Discount Allowed. Payment gateway fees are separate selling expenses. Shopify reporting can be reconciled with accounting software for accurate entries.
Myntra / Nykaa
Fashion and beauty platforms have complex return and discount structures. End-of-season sales often involve both platform-funded and seller-funded discounts. Always cross-reference the settlement statement to identify who funded each discount.
B2B Portals (IndiaMART / Udaan)
Trade discounts are common for bulk orders. Cash discounts are common for early payment. Both must be identified correctly. B2B buyers may claim ITC — ensure GST credit notes for post-supply discounts are issued promptly.
📌 Key Principle for All Platforms: Always obtain and retain the platform's settlement report, tax invoice, and credit note statements. These are source documents for your journal entries. Under Section 128 of the Companies Act 2013 and GST audit requirements, these documents must be retained for a minimum of 6–8 years and form the basis of your books of accounts.
07 — Flow to Financial Statements
How Sales Discounts Flow to the Profit & Loss Account
Understanding where sales discounts appear in the financial statements is essential for reading your P&L correctly. The treatment differs based on the method used — gross method (recommended) or net method.
Sale Invoice
Gross Amount
→
Journal Entry
Dr Bank + Dr Discount | Cr Sales
→
Ledger Posting
Discount Allowed A/c
→
P&L Account
Expense Side (Dr)
S1
SALES A/C (CR)
Gross Sales Recorded
The full selling price before the discount is credited to Sales A/c. Under the gross method, gross revenue is always recorded first — this accurately reflects the business's revenue-generating activity and the cost of promotion separately.
S2
DISCOUNT ALLOWED A/C (DR)
Discount Booked as Expense
Discount Allowed A/c (Nominal) is debited for the amount of discount given. This is a revenue-related expense — the cost of acquiring or retaining a customer. It flows to the Debit side of the Profit & Loss Account, reducing net profit.
S3
TRIAL BALANCE
Balances Extracted
Discount Allowed A/c will have a Debit balance (it is an expense). Sales A/c will have a Credit balance (it is income). Both appear in the Trial Balance and are then transferred to the P&L Account during the closing process.
S4
P&L ACCOUNT
Net Revenue Calculated
In the P&L Account: Gross Sales (Cr side — Income) minus Discount Allowed (Dr side — Expense) = Net Revenue from Sales. The difference is your effective selling price and accurately reflects the true revenue realised by the business after accounting for all promotional costs.
| Account | Type | Normal Balance | P&L or Balance Sheet? | Position |
|---|---|---|---|---|
| Sales A/c | Nominal — Income | Credit | Profit & Loss Account | Income side — increases profit |
| Discount Allowed A/c | Nominal — Expense | Debit | Profit & Loss Account | Expense side — reduces profit |
| Discount Received A/c | Nominal — Income | Credit | Profit & Loss Account | Income side (other income) — increases profit |
| Sales Allowances A/c | Contra Revenue | Debit | Profit & Loss Account | Deducted from Gross Sales — reduces net sales |
| Loyalty Points Liability A/c | Personal — Liability | Credit | Balance Sheet | Current Liabilities — until points are redeemed |
| Customer Refund Payable A/c | Personal — Liability | Credit | Balance Sheet | Current Liabilities — until refund is paid |
08 — Interactive Classroom
Accounts School — Sales Discount & E-Commerce Classroom
Step into the virtual accounting classroom. Navigate through 6 animated lessons covering sales discount journal entries for e-commerce — from trade vs cash discount and coupon code accounting to GST treatment, platform entries, and the flow to P&L — with live quizzes, teacher narration, and interactive notes.
🛒
Accounts School
SALES DISCOUNT · E-COMMERCE · ZEROLEV
Step into a virtual classroom! Learn sales discount journal entries, trade vs cash discount, coupon code accounting, GST on discounts, and Flipkart/Amazon seller accounting with an animated teacher, interactive blackboard, live quizzes, and voice narration.
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09 — Frequently Asked Questions
Frequently Asked Questions — Sales Discount Journal Entry in E-Commerce
Is Discount Allowed a debit or credit in the journal entry?
Discount Allowed A/c is always Debited. It is a Nominal Account representing an expense (a loss for the business — you received less money than the invoice amount). Applying the Third Golden Rule of Accounting — Debit all Expenses and Losses — the Discount Allowed account is debited whenever a discount is given to a customer. It will have a Debit balance in the Trial Balance and will appear on the Debit side (Expense side) of the Profit & Loss Account, reducing the business's net profit for the period.
Why is trade discount not recorded in the books of accounts?
Trade discount is not recorded because it is simply a price reduction — it happens before the transaction is completed. The seller and buyer agree on a price, and the invoice is raised for that agreed price. There is no separate "full price" and "discount" — from an accounting perspective, the transaction occurred at the net amount. Recording a trade discount would inflate revenue (by showing the list price as income) and then immediately reduce it (by showing the discount as an expense), which adds no informational value and clutters the books. The principle is: record the economic reality of what actually happened. The economic reality is that the sale occurred at ₹700 — so record ₹700.
How do I account for a discount on a GST invoice in e-commerce?
For pre-supply discounts (given at invoice time): the discount is deducted from the taxable value before computing GST, per Section 15(3)(a) of the CGST Act. Example: MRP ₹1,000, trade discount ₹100, taxable value ₹900, GST @18% = ₹162, invoice total ₹1,062. Journal entry: Dr Bank ₹1,062 | Cr Sales A/c ₹900 | Cr CGST Payable ₹81 | Cr SGST Payable ₹81. For post-supply discounts: issue a GST Credit Note under Section 34 of the CGST Act. The credit note reduces your output tax liability and the buyer must reverse the proportionate ITC claimed.
What is the difference between Discount Allowed and Discount Received?
Discount Allowed (also called Cash Discount Allowed or Settlement Discount Given): This is the discount YOU give to your customers when they pay early or settle their account. You are the seller. It is an EXPENSE for your business — Debit Discount Allowed A/c. It appears on the Debit (Expense) side of the P&L Account. Discount Received (also called Cash Discount Received): This is the discount YOU receive from your suppliers when you pay them early. You are the buyer. It is an INCOME for your business — Credit Discount Received A/c. It appears on the Credit (Income) side of the P&L Account as Other Income.
Should I record gross sales or net sales in e-commerce when discounts are given?
Best accounting practice recommends recording gross sales and treating the discount as a separate expense line (Discount Allowed A/c). This approach: (1) gives a true picture of revenue earned before promotions, (2) reveals the cost of discount campaigns separately, making management analysis easier, (3) aligns with Ind AS requirements for revenue recognition (Ind AS 115 requires disclosure of variable consideration including discounts), and (4) makes GST reconciliation cleaner. The net method (recording only ₹800 when ₹200 discount is given on a ₹1,000 sale) is simpler but hides the cost of your promotion strategy. For tax assessment, either method is acceptable, but gross method is preferred for businesses with significant discount activity.
How do I record a refund issued to an e-commerce customer?
A customer refund is different from a discount. For a full refund on a returned product: Dr Sales Returns A/c ₹X | Cr Bank/Refund Payable A/c ₹X (plus reverse the GST: Dr CGST/SGST Payable A/c | Cr GST Refund Payable A/c). Issue a GST Credit Note. For a partial refund (price adjustment without return): Dr Sales Allowances A/c ₹X | Cr Bank/Refund Payable A/c ₹X — issue a GST Credit Note for the adjusted amount. When the refund is actually paid: Dr Refund Payable A/c | Cr Bank A/c. The refund workflow in e-commerce also requires updating the payment gateway reconciliation and the TCS credit adjustment in GST returns.