How to price a product after GST (the formula most sellers get wrong)

Work out the profit you want first, then the price: price = (cost + fees + packaging + ads + returns allowance + profit) × (1 + GST rate). Everything inside the brackets is before GST, because the GST you pay on purchases and fees comes back as input tax credit (ITC), and the GST in your price belongs to the government.

Most sellers do it the other way round: copy a competitor's price, then hope. Here is the method, step by step.

Why does the listing price mislead you?

A customer pays ₹499 for a kurti taxed at 5%. Your sale is not ₹499. It is ₹499 ÷ 1.05 = ₹475.24; the other ₹23.76 is GST you collect for the government.

On the cost side it works the other way. If your supplier's bill is on your GSTIN, the ₹11 GST on a ₹220 purchase comes back as ITC, so your real cost is ₹220, not ₹231. The same goes for marketplace fees: their 18% GST is ITC when the fee invoice is on your GSTIN.

So: compare sales without GST against costs without GST. GST is a separate account that passes through your hands.

What goes into the price?

How do you price in the cost of returns?

Returns reverse the GST on that sale, but you still lose the return shipping, the packaging, and any damaged stock. The delivered orders carry that cost:

Returns allowance per delivered order = (return rate ÷ delivery rate) × loss per return

At a 25% return rate and a ₹90 loss per return: 25 ÷ 75 × ₹90 = ₹30 on every delivered order. At 40% returns it is ₹60. Cutting returns (a clear size chart, honest photos) often does more for profit than raising the price.

Worked example

Made-up numbers for one kurti at 5% GST:

1. Product cost before GST: ₹220
2. Fees before GST: ₹60
3. Packaging: ₹12
4. Ads per delivered order: ₹20
5. Returns allowance (25% returns, ₹90 a return): ₹30
6. Profit you want: ₹100
7. Total before GST: ₹442
8. Price with GST: ₹442 × 1.05 = ₹464.10, so list at ₹469

At ₹469 you keep 469 ÷ 1.05 − ₹342 = ₹104.67 per delivered order.

If your marketplace charges commission as a percentage of the price, divide instead: price = (all the fixed parts + profit) ÷ (1 ÷ (1 + GST rate) − commission rate). With the same ₹442 and a 15% commission, the price is about ₹550.86.

The ₹2,500 trap for clothes and footwear

Clothing and footwear up to ₹2,500 a piece (value before GST) are taxed at 5%; above that, 18%. A price of ₹2,625 at 5% leaves you ₹2,500. A price of ₹2,950 at 18% also leaves you ₹2,500. Anything in between gives you nothing extra and sits in an unclear zone. Price at or below ₹2,625, or well above ₹2,950.

Questions

Is TCS a cost?

No. The 0.5% TCS a marketplace deducts is credited to your GST cash ledger once you accept it on the portal. See how to claim marketplace TCS.

What if my ITC is more than the GST on my sales?

It builds up in your credit ledger. With 5% products and 18% fees this is common. The refund for an inverted tax structure covers goods, not services such as fees, so if the balance keeps growing, count that part as a cost when you check profit.

Is there a calculator for this?

The free GST calculator splits any price into value and GST. Didi's book Asli Munafa (in Hinglish) comes with an Excel sheet that does the full per-order profit, the price finder, and the effect of returns.

Does income tax change the price?

Income tax is charged on your profit for the year, not on each sale, so it does not go into the per-order formula. Keep it in mind when you set the profit you want.