Gst On Discounts

Offering various discounts like cash discount, trade discount, volume discount, percentage discount etc. is the part and parcel of the sale promotion activities now a days. Under GST law cash discount, trade discount, volume discount, percentage discount etc. are not bifurcated. However, under GST, discount provisions are bifurcated under following two criteria; 1. Discount offered before or at the time of supply and 2. Discount offered after the supply has been effected. In this article, we look at the applicability of Gst On Discounts and procedure for invoicing.

Section 15 of GST Act

Section 15 of the CGST Act, 2017, deals with the provisions of discounts under GST, the same has been reproduced hereunder for reference purpose: The value of the supply shall not include any discount which is given:

Before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
After the supply has been effected, if –
- Such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices, and
- Input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

On the basis of the above provisions of Section 15, it is pretty clear that discounts are bifurcated in two category i.e. discounts offered before or at the time of supply and discounts offered after the supply has been effected.

Discounts at Time of Supply

Discount offered before or at the time of the supply or at time of invoice, will be allowed as deduction, from the value of the supply, if the same is separately recorded in the

invoice.

Example

Suppose company offered discount @10% on sales of INR 10,000/-. Discount amount would be INR 1,000/-. If such discount amount is reflected in the tax invoice than such discount would be allowed as deduction. Value of supply INR 10,000 (-) Discount INR 1,000. Hence, net value of supply on which GST is payable is INR 9,000. Thus, when discount is mentioned in the invoice and payment is not collected, GST on discount amount would not be applicable. 1 for goods and services.

Discount Offered After Supply

In some cases, a discount could be offered by a supplier after sale of the goods or services to improve collections or customer loyalty. In such cases, the value of supply at the time of invoicing would not have included the discount. In such cases, GST on discount would not be applicable only if the following conditions are satisfied:

There is a written agreement between the supplier and the receiver, at or before the time of supply.
- For example, an agreement that if the customer paid the amount due within 30 days, a discount of 10% would be applicable.
Discount offered should be specifically linked to the relevant invoice.
Input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

When all the above conditions are fulfilled, the value of supply will not include the discount amount and GST would not be applicable on the discount provided.

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Frequently Asked Questions

Common questions about GST on Discounts.

Discounts play a crucial role in sale promotion activities, and the GST law provides clear guidelines on how to treat them for tax purposes. The value of supply, which forms the basis for GST calculation, is impacted by discounts, making it essential to understand the applicable provisions.

The GST law bifurcates discounts into two categories: (1) discounts offered before or at the time of supply, and (2) discounts offered after the supply has been effected. The treatment of these two categories differs in terms of GST applicability and conditions.

Discounts offered before or at the time of supply are allowed as a deduction from the value of the supply, provided they are duly recorded in the invoice issued for that supply. In such cases, GST is calculated on the net value after deducting the discount.

Certainly. Suppose a company offers a 10% discount on sales of INR 10,000. The discount amount would be INR 1,000. If this discount is reflected in the tax invoice, the value of supply on which GST is payable would be INR 9,000 (INR 10,000 - INR 1,000).

For discounts offered after the supply to be excluded from the value of supply, the following conditions must be met: (1) There is a written agreement between the supplier and the receiver at or before the time of supply, (2) The discount is specifically linked to the relevant invoice, and (3) The recipient of the supply reverses the input tax credit attributable to the discount.

Reversing the input tax credit for discounts offered after the supply is a condition specified in the GST law. This is because the initial value of supply, on which GST was paid, did not account for the discount. By reversing the input tax credit, the recipient ensures that the correct amount of GST is paid on the discounted value.

The GST law ensures transparency by mandating the recording of discounts in the invoices and requiring written agreements for discounts offered after the supply. These provisions help in proper documentation and verification of discounts, preventing any potential misuse or evasion of taxes.

Yes, the GST law requires suppliers to maintain proper records related to discounts, such as invoices, agreements, and documents supporting the reversal of input tax credit. These records are crucial for ensuring compliance and facilitating audits or assessments by the tax authorities.

The GST law has brought more clarity and uniformity in the treatment of discounts across the country. Under the previous tax regime, the treatment of discounts varied across states and was subject to different interpretations, leading to potential disputes and litigation.

Yes, the provisions related to discounts under the GST law are applicable to both goods and services. The same principles and conditions apply regardless of whether the supply involves goods or services, ensuring a consistent approach to the treatment of discounts.