Turnover Discount Treatment

[Raman Singla]

What should be treatment of Turnover based discounts received (without GST as per Section 15(3)(b)) in Trading Account ?

[Padmanathan KV]

I am not an expert in Accounting Standards/ Auditing etc... Just sharing practical issue which I have seen and using this query to enrich my knowledge also (with you permission)

If Turnover discount is shown as separate item in the income side of Trading Account, the Department is trying to tax it and thus, exposes to unnecessary litigation.

can it be shown as deduction from purchases has to be explored.

[KASTURI SETHI]

Sh. Raman Singla Ji,

The query is too brief to reply. Pl. elaborate. You will have to be very very careful while drafting terms and conditions in the agreement with the dealer/distributor etc. Correct and concrete reply is not possible without elaboration of your query.

[Raman Singla]

1. Discounts to be received on the basis of Turnover( Purchase ) from Seller , it is on the basis of structural discounts as per purchase agreement , which is depends totally on purchase turnover.

2. Discounts to be received are in the form of Commercial Credit Notes without GST..(No GST is reversed).

3. What should be the treatment of Credit Notes described above in the books of Buyer/Purchaser?

a. Whether such received discount should reduce from purchase in trading account?

b. or it should be shown as indirect income?

Any other clarification will be briefed.

Thanks for your kind reply and participation.

[KASTURI SETHI]

Sh.Raman Singla Ji,

I intend to email an article on this very issue. Your email ID is required.

[Raman Singla]

thanks for you kind concern over the topic

My email-id is [email protected]

[KASTURI SETHI]

The article emailed.

AI Summary

Turnover-based discount treatment: classification may determine whether discounts reduce purchases or attract taxation as income.
Treatment of turnover-based discounts issued as commercial credit notes without GST is questioned as to whether they should reduce purchases in the trading account or be shown as indirect income, since separate income presentation has attracted tax authority attempts to tax such amounts; the discounts are structural under purchase agreements and clear contractual drafting is emphasised to define their accounting and tax character.