Treatment of Discount Under GST – Section 15(3) of CGST Act 2017

1. TREATMENT OF DISCOUNT UNDER GST– SECTION 15(3) OF CGST ACT2017 • https://taxguru.in/goods-and-service-tax/treatment-discount-gst-section-153-cgst-act-2017.html • As per Section 15(3) of CGST Act:– • The value of the supply shall not include any discount which isgiven–– • before or at the time of the supply if such discount has been duly recorded in the invoice issued in respectof such supply;and • after the supply has been effected,if— • such discount is established in terms of an agreement entered into at or before the time of suchsupply and specifically linked to relevant invoices;and • input tax credit as is attributable to the discount on the basis of document issued by the supplierhas been reversed by the recipient of thesupply. • Explanation of the Section15(3): • Amount of discount should be reduced from value of supply if– • Discount is allowed at or before time of supply and amount of discount is mentioned on Invoiceand; • Discount is allowed after supply has been effected if– • Discount is given in terms of an agreement that existed at the time of supply and every invoiceraised earlier discountedand; • Recipient (Purchaser) has reversed the Input tax credit availed which is attributable todiscount (Generally, such discounts are passed on by the supplier through credit notes and Purchaser, by considering those credit notes in GSTR-3B, reverse theITC). • Examples of Discounts under section15(3)(b): • Buy more Save More – E.g.- Get 10 % discount for purchases above Rs. 5000/-, 20% discount forpurchases above Rs. 10000/-etc. • Periodic/Year ending Discount – E.g. – Get additional discount of 1% if you purchase 10000 pieces in ayear, get additional discount of 2% if you purchase 15000 pieces in a yearetc.

2. As per the CBIC Circular No.92/11/2019-GST It is clarified that financial / commercial credit notes can be issued by the supplier even if theconditions mentioned in clause (b) of section 15(3) of the said Act are not satisfied (Credit notes can be issued as a commercial transaction between the two contractingparties). As per the para 2D(v) Value of supply shall not be reduced by the discount which is passed on bythe seller by way of financial/commercial creditnotes. Secondary Discounts which are given to the Purchaser at the time of payment of invoice, shall notbe excluded while determining value of supply as such discount is not known at the time ofsupply. Since GST is not charged on these commercial/financial credit notes, these type of discounts maybe considered as NON GSTSupply. Example: X purchases goods worth Rs. 1,00,000/- plus 18,000 GST from Y(Seller) during the financialyear 2021-22. And X has made the payment to Y Rs. 1,18,000/-. Afterwards, Y(Seller) has filed his GSTR-1 and X(Buyer) gets the ITC of Rs.18,000/-. Now in Financial year 2022-23, Y(Seller) gives volume discount (which does not fulfil the condition ofsection 15(3)(b)) to X(Buyer) in respect of purchases made during the financial year2021-22. To Pass-on this type of discount which does not fulfil the conditions of section 15(3)(b) Y(seller) may issuethe financial / commercial credit notes to the X(buyer) and not to charge the GST on such credit notes as it does not reduce the value ofsupply. Also, X (purchaser) need not to reverse the ITC on such financial/commercial creditnotes.