GST-on-Discounts

GST on Discounts

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.

Find GST rate 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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