Clarification on post-sale discount under GST

clarification on post-sale discount under gst
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Clarification on post-sale discount under GST

The government had issued a notification vide Circular No. 92/11/2019-GST on 7th March 2019 providing clarification on various doubts related to the treatment of sales promotion schemes under GST. However, there were lots of questions/queries with respect to the treatment of GST in cases of secondary discounts or post-sales discount. The Government has now issued the clarification in this regard vide Circular No. 105/24/2019-GST.

Click here to download the circular issued on 28th June 2019

Click here to download the circular issued on 7th March 2019

How to determine the “Value of Supply” in the case of post-sale discounts?

The government clarifies that in order to determine the value of supply in case of post-sale discounts, the provisions of clause (b) of sub-section (3) of section 15 of the CGST Act should be referred.

Clause (b) of sub-section (3) of section 15 mentions that:

The value of the supply shall not include any discount which is given 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

Hence, in order to determine the value of supply in case of post-sale discounts, one needs to examine the following carefully:

  • The true nature of discount given by the manufacturer or wholesaler, etc. and
  • More importantly, one should examine whether the additional discount is given by the supplier in lieu of consideration for any additional activity / promotional campaign to be undertaken by the dealer

Post-sale discount without further obligation:

If the post-sale discount is given by the supplier without any further obligation or action required at the dealer’s end, then the post-sales discount given will be related to the original supply of goods and it would not be included in the value of supply, in the hands of supplier of goods.

Post-sale discount with a further obligation:

Supplier/ Manufacturer ———–> Dealer —————-> End Customer

If the additional discount given by the supplier is the post-sale incentive requiring the dealer to do some act like undertaking special sales drive, advertisement campaign, exhibition, etc., then such transaction would be a separate transaction and the additional discount will be the consideration for undertaking such activity

Therefore such an act would be considered to be in relation to the supply of service by the dealer to the supplier of goods. In such scenario, the dealer would be required to charge applicable GST on the value of such additional discount and the supplier of goods, being the recipient of services, will be eligible to claim an input tax credit of the GST so charged by the dealer

What is Value of Supply and applicability of GST if the additional discount given is to augment the sales volume?

Sometimes, the supplier or the manufacturer provides an additional discount to the dealer to offer a special reduced price by the dealer to the end customer to augment the sales volume. In such cases, as clarified by the government;

  • such additional discount would represent the consideration flowing from the supplier of goods to the dealer for the supply made by the dealer to the customer and hence will attract GST. This additional discount as consideration, payable by (say) supplier would be required to be added to determine the value of supply to be made by the dealer to the customer.
  • In this case, the customer; if registered, would be eligible to claim ITC of the tax charged by the dealer only to the extent
    of the tax paid by the said customer to the dealer.

This clarification has become the biggest discussion point. 

Whether a dealer needs to reverse ITC; in case of discounts granted by the supplier but not excluded from Value of Supply?

Sometimes post-sales discount granted by the supplier of goods is not permitted to be excluded from the value of supply in the hands of the said supplier since the provisions contained in sub-section (3) of section 15 of CGST Act are not met. In such a case, the GST is paid on the entire value without excluding the discounts. It has been already clarified in Circular No. 92/11/2019-GST dated 7th March 2019 that the supplier of goods can issue financial/commercial credit notes in such cases but he will not be eligible to reduce his original tax liability.

For eg: A manufacturer sells a product worth Rs 10,000 to a dealer at Rs 8,000/-. However, the discount of Rs 2,000 does not satisfy the provisions of subsection 3 of Sec 15 of the GST Act. In such case, the GST will be paid on Rs 10,000/- by raising an invoice and a financial/commercial credit note will be issued for Rs 2,000/-

However, the question in such situation was raised on whether the dealer will be eligible to take ITC of the original amount of tax paid by the supplier of goods ( i.e. on Rs 10,000 in above example)  or only to the extent of GST payable on value net of amount for which such financial/commercial credit notes have been received by him (on Rs 8,000/-in above example).

It is clarified that the dealer will not be required to reverse ITC attributable to the tax already paid on such post-sale discount received by him through the issuance of financial/commercial credit notes by the supplier of goods. Hence in our example above, the dealer can take ITC of GST paid on Rs 10,000.

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About CA Janhavi Phadnis 78 Articles
Chartered Accountant and financial consultant. She has worked with corporates for 14 years with expertise in Forex-Treasury, Accounting, and Corporate Tax. She can be contacted at

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