Discounts Under GST

Discounts Under GST

In this article, we will discuss how to get a discount using GST number, the impact of discounts under GST, and its eligibility.

Treatment of Discount in the Previous Indirect Taxation Regime

Here is the treatment of discount HSN code in GST in the previous taxation rule: In the case of excise and service tax, all the discounts are given pre and post-sale are allowed. However, in the case of Value Added Tax, there is a different treatment of discount under GST in different states.

Treatment of Discount Under GST

GST on discounts that are provided before supply under GST is eligible for deduction from the transaction value provided that such a discount is mentioned on the invoice. However, under GST, a discount that is given post supply will be eligible when such condition is mentioned on the sale agreement/deed, as well as the sale invoice and when the ITC (Input Tax Credit) proportionate to the discount, is reversed by the recipient.

Let us understand this with an example: ABC is a wholesaler selling tires. ABC now sells the tires to a trader XYZ for 2,000 INR providing a discount of 1%. ABC the wholesaler incurs 200 INR as packaging and handling charges. To motivate the trader XYZ, ABC offers a discount of 0.5% if the trader pays within 14 days.

It shall be noted that the discount of 0.5% is not deducted from the invoice as it will be provided at the time of payment. However, it does qualify for deduction from the transaction value as this discount was known at the time of supply. To deduct this discount from the transaction value ABC needs to issue a credit note to XYZ.

The Bottom Line

Through the below-mentioned table, you can understand the treatment of discount under GST.

Note: The views stated above in this article are based on the writer’s understanding of laws and circulars issued by the CBEC.