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Settlement reconciliation for Indian e-commerce sellers and D2C brands involves a level of complexity that general-purpose accounting systems do not handle well. Payment gateways deduct fees and taxes before remitting. Marketplaces apply commissions, logistics charges, TCS, and return adjustments — all in the same settlement. This glossary defines every term you will encounter when reconciling platform settlements in India.
Settlement and Payout Terms
Settlement — The process by which a payment gateway or marketplace transfers collected funds to the merchant or seller, after deducting applicable fees, taxes, and adjustments. Settlement is the point at which a transaction moves from receivable to cash in the seller’s books.
Payout Cycle — The frequency and timing of settlement transfers from a platform to a seller. Razorpay, PayU, and Cashfree typically settle on a T+2 cycle for most payment modes. Marketplaces like Flipkart and Meesho may have weekly or bi-weekly cycles. The payout cycle creates a predictable lag between order fulfilment and cash receipt that finance teams must account for in working capital planning and reconciliation.
Settlement Report — A structured data file (CSV or Excel) provided by a payment gateway or marketplace that itemises all transactions included in a payout — order amounts, fees, taxes, returns, chargebacks, and the net amount transferred. Settlement reports are the primary input to platform reconciliation.
Nodal Account — A bank account maintained by a payment aggregator or marketplace at a scheduled commercial bank, regulated by the RBI’s guidelines on payment aggregators and payment gateways. Customer payments are first collected in the nodal account and held there before being remitted to merchants. The nodal account structure is why there is always a settlement lag between payment and payout.
Escrow Account — An account where funds are held by a third party (often a bank or regulated entity) on behalf of transacting parties until specified conditions are met. In real estate, education, and subscription platforms, escrow accounts hold customer advance payments until service delivery triggers release. Reconciliation of escrow-held funds requires matching disbursement triggers against the platform’s release log.
Virtual Account — A unique bank account number assigned to a specific payer or transaction, used to identify and auto-match incoming payments without manual intervention. Virtual accounts eliminate narration ambiguity — every credit to a virtual account is unambiguously attributable to the associated payer or invoice, improving auto-match rates significantly.
Marketplace Seller — A business that lists and sells products on a third-party marketplace (Amazon, Flipkart, Meesho, etc.) and receives periodic settlement payouts. The marketplace acts as an e-commerce operator for TCS purposes under Section 52 of the CGST Act and Section 194-O of the Income Tax Act.
T+1 / T+2 Settlement — Shorthand for the settlement cycle. T is the transaction date; T+1 means funds are settled one business day later; T+2 means two business days later. Understanding the settlement cycle is essential for reconciling which transactions are included in each settlement file.
UPI (Unified Payments Interface) — A real-time payment system operated by NPCI that enables instant bank-to-bank transfers via mobile. UPI transactions typically settle on a T+1 cycle for merchants. UPI transaction IDs (which have a distinct format from NEFT/RTGS UTRs) must be correctly parsed by reconciliation systems.
NACH Credit — Bulk credits issued through the National Automated Clearing House, used by marketplaces and platforms to disburse seller settlements in batch rather than individual NEFT/RTGS transfers. NACH credits from a marketplace arrive as a single consolidated credit with a reference that must be mapped to the individual seller settlement data in the platform report.
Gross Settlement vs Net Settlement — In gross settlement, the platform remits the full collected amount and invoices separately for fees and deductions. In net settlement (the standard for Indian platforms), the platform remits a single net amount after deducting all fees, taxes, and adjustments. Net settlement requires the seller to reverse-engineer each deduction from the settlement report during reconciliation.
Fees, Deductions, and Taxes
MDR (Merchant Discount Rate) — The fee charged by a payment gateway or acquiring bank as a percentage of each transaction value. MDR varies by payment mode: card transactions typically attract 1.5–2%, while UPI MDR is zero for most merchant categories per RBI mandate. MDR attracts 18% GST and is deducted before settlement.
PG Charges — A general term for all fees levied by a payment gateway on the merchant — including MDR, setup fees, monthly fees, and any per-transaction charges. PG charges appear as line-item deductions in settlement reports and must be reconciled against the gateway’s monthly invoice.
Platform Commission — The percentage of the sale price that a marketplace retains as its service fee. Platform commission rates vary by category and seller tier. Commission is deducted from settlement payouts and must be matched against the marketplace’s commission invoice or debit note for ITC and accounting purposes.
TCS (Tax Collected at Source under Section 52) — E-commerce operators are required under Section 52 of the CGST Act to collect 1% GST on net taxable sales made through their platform on behalf of sellers. This is deducted from settlement payouts. Sellers claim credit for this amount in their GSTR-3B after it appears in their GSTR-2B, which requires the operator to have filed GSTR-8 for the period.
TDS Section 194-O (E-Commerce Operator TDS) — Introduced in FY 2020-21, Section 194-O requires e-commerce operators to deduct 1% income tax TDS on gross sales made through their platform by any seller whose aggregate sales exceed Rs 5 lakh in a financial year. This TDS is deducted from settlement payouts and the seller claims credit via Form 26AS. Reconciliation requires matching 194-O TDS deductions in the settlement report against amounts reflecting in TRACES.
ITC on MDR — Input Tax Credit on the GST component of MDR fees paid to a payment gateway. Claimable by merchants on taxable supplies, provided the gateway issues a valid tax invoice. Finance teams must reconcile MDR GST amounts from settlement data against invoices received to determine the claimable ITC amount each month.
Rolling Reserve — An amount withheld by a payment gateway from settlement payouts as a risk buffer against future chargebacks or refund obligations. Typically 5–10% of gross transaction value, held for 90–180 days before being released. Rolling reserve balances must be tracked separately in the balance sheet and reconciled against the gateway’s reserve statement.
Dispute and Returns
Chargeback — A forced reversal of a payment initiated by the card-issuing bank on behalf of the cardholder, typically due to a dispute about goods not received, fraud, or unauthorised transaction. Chargebacks are deducted from future settlement payouts. Finance teams must match chargeback deductions in settlement reports to original order records and track resolution outcomes.
Chargeback Dispute — The process by which a merchant contests a chargeback by providing evidence of delivery or service completion to the payment gateway, which submits it to the card network for adjudication. The outcome (won or lost) determines whether the chargeback amount is reversed to the merchant in a subsequent settlement.
COD (Cash on Delivery) — A payment mode where the customer pays in cash at the point of delivery rather than online. COD orders involve a logistics partner collecting cash and remitting it to the seller or marketplace, creating a separate reconciliation stream from digital payment settlements.
COD Remittance — The periodic transfer of COD cash collected by a logistics partner (Delhivery, Ecom Express, Blue Dart, etc.) to the marketplace or seller. COD remittances arrive on their own cycle (weekly or bi-weekly for most logistics firms) and must be reconciled against delivery confirmation records and COD order data.
Return / Refund Reconciliation — The process of matching customer returns and refunds processed by a platform against the corresponding deductions in settlement reports. Returns create negative adjustments in future settlements or generate separate refund entries. High return rates on marketplaces create reconciliation complexity, particularly when returns are partially accepted or delayed.
Acquirer — The bank or financial institution that processes card payments on behalf of the merchant. In the payment flow, the acquirer settles funds to the merchant’s bank account. Understanding the acquirer’s role helps finance teams trace chargebacks and dispute resolution timelines.
Issuer — The bank that issued the payment card or account to the customer. In a dispute, the issuer initiates the chargeback on behalf of the cardholder. Chargebacks travel from issuer to card network to acquirer to payment gateway to merchant.