Section 15 (3)of the CGST Act, 2017 states that:
“The value of the supply shall not include any discount which is given –
(a) 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
Implies -
Discount, even if not mentioned on the face of the invoice can be reduced from the taxable value, if following conditions are satisfied:
I) 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.
• Satisfying the above conditions, if the Post Sales Trade discount can be linked to the specific supply invoice then the GST applicable on the Credit note raised would be @ 12% and not 18%.
• GSTR 1 should mention the credit note details Invoice-wise such that equivalent Input Tax credit is passed on to the recipient of Goods.
• If post supply discounts were not anticipated at the time of supply, it is not allowed to be deducted from value. In such situation the discount will not be added to the Taxable value of supply and also the customer has to reverse the ITC on the amount of discount allowed - Such incidents are recorded in Cash Discounts.
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Discounts like trade discount, quantity discount etc. are part of the normal trade and commerce, therefore pre-supply discounts i.e. discounts recorded in the invoice have been allowed to be excluded while determining the taxable value.
Discounts provided after the supply can also be excluded while determining the taxable value provided two conditions are met, namely - (a) discount is established in terms of a pre supply agreement between the supplier & the recipient and such discount is linked to relevant invoices and (b) input tax credit attributable to the discounts is reversed by the recipient.
Further, Section 34of the CGST Act, 2017 provides for issuance of credit notes for post supply discounts within a stipulated time. When such credit notes are issued, obviously it would call for reduction in output liability of the supplier. Hence, the taxes paid initially on the supply would be higher than what is actually payable. In such a scenario the excess tax paid by the supplier needs to be refunded. However, instead of refunding it outright, it is sought to be adjusted after verifying the corresponding reduction in the input tax credit availed by the recipient. Section 43 of the CGST Act, 2017 provides for procedure for reduction in output liability on account of issuance of such credit notes.
From above it is clear that the value of goods and tax applicable on it shall be the value after discount and applicable tax in credit note shall match.
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This GST treatment applies to all prompt payment discounts regardless of whether your customer takes up the discount offer. The treatment does not apply to payments by installments.
When the Rebate is Given in the Form of Cash
When the rebate is given to your customer in the form of cash, it is equivalent to a discount given for past purchases.
You are required to issue a credit note to your customer to reduce the selling price and GST amount for his past purchases. You should make the corresponding adjustments in your GST return for the period in which you issue the credit note.
Your customer, if GST-registered, should reduce his input tax claim in his GST return for the period in which he receives the credit note.
When the Rebate is Used to Offset Future Sales
When the rebate is used to offset against the value of your next sale to the customer, you should charge and account for GST on the net value of that sale (i.e. after deducting the rebate).
This is so even if the rebate is based on your customer's purchase volume. Your customer, if GST-registered, should account for GST at 7/107 of the cash rebate received and issue a tax invoice to you.
“The value of the supply shall not include any discount which is given –
(a) 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
(b) After the supply has been effected, if –
(I) 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
(ii) 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.”Implies -
Discount, even if not mentioned on the face of the invoice can be reduced from the taxable value, if following conditions are satisfied:
I) 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.
ii) Discount is linked to a specific supply invoice.
Iii) ITC attributable to the discount is required to be reversed by the buyer or recipient of the supply.• Satisfying the above conditions, if the Post Sales Trade discount can be linked to the specific supply invoice then the GST applicable on the Credit note raised would be @ 12% and not 18%.
• GSTR 1 should mention the credit note details Invoice-wise such that equivalent Input Tax credit is passed on to the recipient of Goods.
• If post supply discounts were not anticipated at the time of supply, it is not allowed to be deducted from value. In such situation the discount will not be added to the Taxable value of supply and also the customer has to reverse the ITC on the amount of discount allowed - Such incidents are recorded in Cash Discounts.
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Discounts like trade discount, quantity discount etc. are part of the normal trade and commerce, therefore pre-supply discounts i.e. discounts recorded in the invoice have been allowed to be excluded while determining the taxable value.
Discounts provided after the supply can also be excluded while determining the taxable value provided two conditions are met, namely - (a) discount is established in terms of a pre supply agreement between the supplier & the recipient and such discount is linked to relevant invoices and (b) input tax credit attributable to the discounts is reversed by the recipient.
Further, Section 34of the CGST Act, 2017 provides for issuance of credit notes for post supply discounts within a stipulated time. When such credit notes are issued, obviously it would call for reduction in output liability of the supplier. Hence, the taxes paid initially on the supply would be higher than what is actually payable. In such a scenario the excess tax paid by the supplier needs to be refunded. However, instead of refunding it outright, it is sought to be adjusted after verifying the corresponding reduction in the input tax credit availed by the recipient. Section 43 of the CGST Act, 2017 provides for procedure for reduction in output liability on account of issuance of such credit notes.
From above it is clear that the value of goods and tax applicable on it shall be the value after discount and applicable tax in credit note shall match.
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Discounts Given to Customer
Sales Discount
When you offer your customers a discount on the selling price of your goods and services, GST is chargeable on the net discounted price.Prompt Payment Discount
When you offer a discount for prompt payment to your customers, GST is chargeable on the net price after the prompt payment discount.This GST treatment applies to all prompt payment discounts regardless of whether your customer takes up the discount offer. The treatment does not apply to payments by installments.
Rebates Given to Customers
The GST treatment depends on the circumstances in which the rebate is given.1. Rebates for Certain Purchase Amounts
You may give a volume rebate to your customer for making purchases above a certain amount.When the Rebate is Given in the Form of Cash
When the rebate is given to your customer in the form of cash, it is equivalent to a discount given for past purchases.
You are required to issue a credit note to your customer to reduce the selling price and GST amount for his past purchases. You should make the corresponding adjustments in your GST return for the period in which you issue the credit note.
Your customer, if GST-registered, should reduce his input tax claim in his GST return for the period in which he receives the credit note.
When the Rebate is Used to Offset Future Sales
When the rebate is used to offset against the value of your next sale to the customer, you should charge and account for GST on the net value of that sale (i.e. after deducting the rebate).
2. Conditional Rebates Given to Customers
When your customer needs to meet certain obligations imposed by you (e.g. undertake advertising and marketing activities) to be entitled to a rebate, your customer is providing a separate supply of services to you.This is so even if the rebate is based on your customer's purchase volume. Your customer, if GST-registered, should account for GST at 7/107 of the cash rebate received and issue a tax invoice to you.
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