GST ON TRADE DISCOUNT

[SAFETAB LIFESCIENCE]

Dear Experts,

We are giving post- sales Trade Discount to our customers. The GST rate is for our final products is 12% .

The customer receiving Trade Discount is instructing us to put GST 18% on Discount value and we have given Credit Note with 18% GST several times. We have reduced the Trade Discount Credit Note value in Taxable Sale Value and reduced the 18% GST value from the GST payable in GSTR-3B.

Please confirm the GST rate on Discount 18 % is correct or not. Our GST officials are telling it is wrong and we have to put GST only 12%.

Please clarify with documentary evidences / notification / GO details like that since our customers are MNC Indian company and they will ask evidences from us.

[Praveen Nair]

Hi

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

(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.

[Alkesh Jani]

Sir,

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 34 of 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.

[Ganeshan Kalyani]

Credit note should be with 12% rate. Credit note is related to sale of product, so any reduction on account discount should also attract the rate applicable to that product.

AI Summary

Trade discount GST must match the product's GST rate, so credit notes apply the same tax rate. Post sale trade discounts can reduce taxable value if they are established by a pre supply agreement, linked to specific invoices, and the recipient reverses the input tax credit attributable to the discount; in such cases the credit note should carry the GST rate applicable to the underlying product and supplier output liability is adjusted on issuance of the credit note, with procedural guidance under the provisions enabling credit notes and adjustment of output liability.