GST APPLICABILITY FOR DISCOUNT AND CLARRIFICATION ON DEBIT NOTE

[SAFETAB LIFESCIENCE]

Dear Experts,

Is Trade Discount is applicable for GST.

Whether we have to charge GST in our Credit Note when we allow Trade Discount to our customers after sales for making immediate/earlier payments before the due date we fix credit terms. What is the difference between Trade Discount and Cash Discount.

If we want to DEBIT some amounts to our suppliers towards price difference, excess freight charged or insurance charges charged in their Invoice, shall raise Debit Note against their suppliers invoice. If so GST is applicable or not on that debit amounts.

[KASTURI SETHI]

Trade discount means difference between declared price and actually charged price from the buyer at the time of supply (sale) or after the supply ( sale).Cash discount is one of the types of trade discounts. Other trade discounts are quantity discount, annual turnover discount, off-season discount, conditional discount etc. Trade discounts must be passed on to the buyers. Trade discount is admissible in GST. Trade discount does not form the part of transaction value as per Section 15 (3) of CGST Act for the purpose of payment of GST.

Discount can passed on by way of credit note. Post sale (supply) trade discount is specifically provided under Section 15(3)(b)(i) of CGST Act with the condition that it has to be established via agreement before the time of supply and specifically linked to relevant invoice. ITC has to be reversed by the buyer attributable to the discount under Section 15 (3)(b)(ii) of CGST Act.

GST is applicable on the price difference (excess amount charged) by way of Debit Note.

If trade discount is not passed on to the buyer, the supplier will invite interest and penalty along with GST payable on the amount of discount not passed on.

[KASTURI SETHI]

Invoice remains the same. You are to link Credit Note with invoice by mentioning particulars of the invoice in the Credit Note.

AI Summary

Trade discount exclusion from transaction value under GST requires pre-agreement and invoice linkage, with ITC reversal by recipient. Trade discount, including cash and other commercial discounts, is excluded from GST transaction value where it is pre-agreed and linked to the invoice; post-supply discounts should be documented by credit note referencing the invoice and trigger reversal of input tax credit by the buyer. Debit notes recording additional amounts charged after invoicing are subject to GST, and failure to pass agreed discounts renders the supplier liable for GST, interest and penalty.