Discounts

Discounts will be treated differently under GST. Discounts given before or at the time of supply will be allowed as deduction from transaction value. Discounts given after supply will be allowed only if certain conditions are satisfied.

Under GST, discounts given before or at the time of supply will be allowed as deduction from transaction value. Such discounts must be clearly mentioned on the invoice.

Discounts given after supply will be allowed only if:

it is mentioned in the agreement entered into before sale input tax credit proportionate to the discount has been reversed by the recipient of the supply and it can be clearly tracked to relevant tax invoice

To continue with our previous example, XYZ is a wholesaler selling tools like drills, polishers, spades etc. XYZ now sells the power drill to a trader TDR for INR 4,000 offering a 1% discount. XYZ incurs INR 150 packing charges

To encourage prompt payment, XYZ offers additional 0.5% discount if WHL pays within 7 days.

Discount of 0.5% is not deducted in the invoice because it will be given at the time of payment. However, since this discount was known at the time of supply, and can be linked to this specific invoice, and the discount amount can be reduced from the transaction value.

For this, XYZ Ltd. will issue a credit note to TDR for INR 20 (0.5% of INR 4,000 = INR 20+ GST@ 18% on INR 20 = INR 3.60), and this must be linked to the relevant tax invoice. Here, discount has been given after supply. But it was agreed upon at the time of supply and can be traced to the relevant invoice. So it will be allowed to be deducted from the transaction value.