Introduction
Discounts given after supply — year-end rebates, target incentives, and volume discounts — are common in B2B trade. The question arises: Can a discount given after supply be excluded from the taxable value for GST purposes?
The answer is yes, provided the conditions under Section 15(3)(b) are satisfied. The CBIC Circular No. 251/08/2025-GST has recently clarified the treatment of post-sale discounts.
This guide explains the legal framework and the conditions.
Legal Framework: Section 15(3)(b) of the CGST Act, 2017
Exclusion of Post-Supply Discounts
Section 15(3)(b) provides that the value of supply shall not include any discount given after the supply has been effected if:
- The discount is established in terms of an agreement entered into at or before the time of supply and specifically linked to relevant invoices.
- The input tax credit attributable to the discount has been reversed by the recipient of the supply.
The CBIC Circular No. 251/08/2025-GST
The CBIC Circular No. 251/08/2025-GST dated 12th September 2025 clarified that where a supplier issues a financial or commercial credit note for a post-sale discount, the recipient is not required to reverse ITC if the discount is a pure price reduction without any service element.
However, where the dealer explicitly undertakes promotional services under a contractual agreement, GST is applicable on such services.
Conditions for Exclusion
- Agreement: The discount must be established in an agreement entered into at or before the time of supply.
- Invoice Linkage: The discount must be specifically linked to relevant invoices.
- ITC Reversal: The recipient must reverse the ITC attributable to the discount.
Practical Implications
- Credit Note: The supplier issues a credit note for the post-sale discount.
- ITC Reversal: The recipient reverses the proportionate ITC.
- GST Adjustment: The supplier adjusts the GST liability in the subsequent return.
Documentation Required
- Agreement: Documentation of the discount agreement.
- Credit Note: Credit note issued by the supplier.
- ITC Reversal Proof: Proof of ITC reversal by the recipient.
- Invoice Linkage: Documentation linking the discount to relevant invoices.
Best Practices
- Document the Agreement: Ensure the discount agreement is in place before supply.
- Link to Invoices: Specifically link the discount to relevant invoices.
- Reverse ITC: Ensure the recipient reverses the proportionate ITC.
- Maintain Records: Document all post-sale discounts and credit notes.
- Seek Professional Assistance: For complex discount arrangements, seek guidance.
Conclusion
Discounts given after supply can be excluded from taxable value under Section 15(3)(b), provided the conditions are satisfied. The CBIC Circular No. 251/08/2025-GST has clarified the treatment of post-sale discounts and the ITC reversal requirement. Proper documentation is essential.
Giving post-supply discounts? Anuj Desai & Associates provides expert guidance on GST valuation and ITC reversal. Contact us today.
Contact us:
- Email: office@anujdesaiassociates.com
- Phone: 9619456656
- Website: https://anujdesaiassociates.com
- LinkedIn: linkedin.com/in/ca-anuj-desai-122547230