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Discounts Under GST

Prakash Matre
Prakash Matre at June 02, 2023

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.

Tire sale value 2,000 INR
Packaging and Handling 200 INR
Pre - Discount on sales HSN code value (1%) 20 INR
Subtotal 2,220
Add CGST @ 9% 200 INR (Approx)
Add IGST @ 9% 200 INR (Approx)
Total 2,620 INR



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.

Particulars Deduction Allowed from the transaction value
Discount provided at the time of supply or before it as well as recorded in the invoice. The Discount is eligible for deduction from the transaction value.
Discount is given after the supply but known before or at the time of supply as well recorded in the invoice. The discount is eligible for deduction from the transaction value. However, there will be two pre-requisite: Credit Note needs to be issued by the supplier and Input Tax Credit needs to be reversed by the recipient of such supply.
Discount is given by the supplier to the recipient that was not disclosed before or at the time of supply. Irrespective of whether it is recorded in the invoice or not. No, the discount will not be eligible for deduction from the transaction value. Moreover, it shall be noted that financial and commercial note needs to be issued by the supplier and ITC (Input Tax Credit) needs not to be reversed.

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

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