Various Discounts and its treatment in GST
It is the normal practice/ trend to offer various discounts in the business so that business can be run smoothly. But the question is whether all discounts offered in the business are eligible to deduct from value of GST? In this article, we will discuss regarding the discounts and its tax treatment.
According to 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 s
On the basis of the above provisions of Section 15 it can be concluded 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 offered before or at the time of supply
Discount, if mentioned on the face of the invoice, can be reduced from the taxable value of the supply of goods.
Discounts offered after the supply has been effected.
Discount, even if not mentioned on the face of the invoice can be reduced from the taxable value, if following conditions are satisfied:
- Discount is established in terms of an agreement before supply. In simple words, both supplier and recipient are aware and have agreed about the discount before the supply.
- Discount is linked to a specific supply invoice.
- ITC attributable to the discount is required to be reversed by the buyer or recipient of the supply.
GST liability of the supplier would be reduced if both supplier and receiver of the goods or services are aware of the discount before supply.
Note: There will be no differentiation in GST between trade and cash discounts.
Hence, the intent or commercial arrangement between the supplier and buyer would decide whether the discount in relation to any supply could reduce the GST liability of the supplier to the extent of such discount. If post supply discounts were not anticipated at the time of supply, it is not allowed to be deducted from value.
Following are list which cannot be treated as discount?
- Rebate
- Bad debts
- Performance Incentive
- Warranty Coupons
- Buy 1 Get 1 Scheme
- Rejection in B to C transaction
- Promotional Gifts
