Tax Calculation on Shipping Charge

This section explains how to back-calculate the taxable value and GST component on shipping charges when the shipping amount collected from the customer is GST-inclusive. The examples below illustrate how the calculation works. If you use any other method, you’ll need to upload your own invoice at the time of delivery. These methods apply only when the auto-invoice feature is enabled.

Three common ways to calculate GST on shipping charges in India. Each approach treats the shipping fee as part of the taxable supply, but the rate can be derived differently.

For example, one problem statement is created.

• Shipping charge collected from customer (GST inclusive): ₹150
• Two items sold in the same order:
• Item A: Taxable value ₹200, GST slab 5%
• Item B: Taxable value ₹300, GST slab 18%
• Total item value = ₹200 + ₹300 = ₹500
• Item-wise proportion:
  • 5% slab share = 200 / 500 = 40%
  • 18% slab share = 300 / 500 = 60%

1. Fixed percentage method

In this method, shipping is taxed at a preset fixed GST rate , regardless of what’s being shipped.

Calculation

Taxable value of shipping = 150 / 1.18 = ₹127.12

GST component = 150 − 127.12 = ₹22.88

Result

Taxable value: ₹127.12

GST @ 18%: ₹22.88

Total: ₹150.00

2. Highest Slab Method

Shipping is taxed at the highest GST rate applicable to any item in the order.

Calculation

One item at 5% GST slab and another at 18% means apply 18% on the shipping charge.

Taxable value of shipping = 150 / 1.18 = ₹127.12

GST component = 150 − 127.12 = ₹22.88

Result

Taxable value: ₹127.12

GST @ 18%: ₹22.88

Total: ₹150.00

3. Proportionate rate method (GST-Compliant Approach)

In this method, shipping charges are split in proportion to the taxable value of items in each GST slab, and tax is back-calculated separately.

Step 1: Allocate gross shipping amount

Shipping attributed to 5% slab = 150 × 40% = ₹60

Shipping attributed to 18% slab = 150 × 60% = ₹90

Step 2: Back-calculate each slab

5% slab portion

Taxable value = 60 / 1.05 = ₹57.14

GST = 60 − 57.14 = ₹2.86

18% slab portion

Taxable value = 90 / 1.18 = ₹76.27

GST = 90 − 76.27 = ₹13.73

Step 3: Combine values

Total taxable value = 57.14 + 76.27 = ₹133.41

Total GST = 2.86 + 13.73 = ₹16.59

(Check: 133.41 + 16.59 = 150)

Disclaimer: This document is for explanation purposes only and should not be treated as tax advice. Always confirm the applicable method with your accounting team before implementing in production systems.

Shipping Charges Calculation

This document explains how shipping charges are calculated in the system, including the concept of shipping zones, pricing models, and fallback rules. It is intended for support, operations, and internal stakeholders to understand how final shipping charges are derived for an order.

Note: Shipping charge calculation is independent of shipping tax calculation. GST or other taxes are applied after the shipping amount is computed.

Shipping Zone

A shipping zone is a configurable geographic grouping used to determine how shipping charges are calculated for an order.

Each shipping zone can be defined using:

• One or more states (for domestic shipping)
• One or more countries (for international shipping)
• A flag to indicate whether the zone is domestic or international

Shipping zones allow businesses to:

• Charge different shipping prices for different regions
• Offer region-specific free shipping thresholds
• Apply different delivery timelines and pricing logic

If a customer’s shipping address matches a configured zone, that zone’s pricing rules are applied.

Free Shipping Logic

Before calculating shipping cost, the system checks for free shipping eligibility.

Free shipping thresholds are set at the company level

• If the shipment is domestic and total order value ≥ Minimum cart value for free domestic shipping, then shipping charge = 0
• If the shipment is international and total order value ≥ Minimum cart value for free international shipping, then shipping charge = 0

If free shipping applies, no additional shipping charge calculation is performed.

Shipping Charge Calculation Flow

The system calculates shipping charges using the following steps:

Identify seller location (state and country) from company details

Identify buyer location (state and country) from the shipping address

Determine shipment type:

• Same country → Domestic shipment
• Different country → International shipment

Match buyer location with a configured shipping zone

Calculate total order value

Check eligibility for free shipping

Determine pricing method (custom or API-based)

Apply zone-specific pricing model

If no zone matches, apply default fallback pricing

• Shipping Rate Types

Each shipping zone defines how shipping prices are sourced using Rate Type.

1. Custom Rates

Shipping cost is calculated using pricing rules defined within the zone configuration.

2. API-Based Rates

Shipping cost is fetched directly from an external courier or logistics API.

3. Pricing Models for Custom Shipping Rates

When rate type is Custom, the system uses one of the following pricing models.

4. Flat Rate Pricing

A fixed shipping charge applies regardless of order weight or item count.

How it works:

Zone defines a flat shipping amount

Weight calculation is skipped

Shipping charge = flat rate

Example:

Flat rate = ₹99

Shipping charge = ₹99

5. Slab-Based Pricing

Shipping cost depends on the total shipment weight falling within predefined slabs.

How it works:

Calculate total shipment weight

Ignore items marked as free shipping

If all items are free shipping → shipping charge = 0

Compare total weight against slab ranges

Apply the slab price where:

Minimum weight ≤ order weight ≤ maximum weight

If no slab matches, the highest slab price is applied.

Example slabs:

0–1 kg → ₹50

1–3 kg → ₹80

3–5 kg → ₹120

If order weight is 2 kg → shipping charge = ₹80

• Base + Incremental Pricing

A base price covers shipping up to a certain weight, and additional charges apply per unit weight beyond that.

How it works:

Base price applies up to base weight

For weight above base weight:

Extra cost = excess weight × incremental price (per kg)

Example:

Base weight = 1 kg

Base price = ₹60

Incremental price = ₹20 per kg

Order weight = 3 kg

Shipping charge = 60 + (3 − 1) × 20 = ₹100

Weight Calculation Rules

Total weight is calculated by summing weights of all items

Items marked as free shipping are excluded from weight calculation

If product weight is missing, fallback weight is used.

Zone Not Found (Fallback Pricing)

If no shipping zone matches the customer’s location, default delivery rules apply.

Domestic shipment → Default Domestic Shipping Charge

International shipment → Default International Shipping Charge