As a normal trade practice in order to boost sales and recover the payment in a speedy
manner, the supplier has to give some discount to customers in the form of trade or cash discount and due
to this the biggest question
will arise to determine the value of supply in GST regime i.e. what will the
taxable value and on which
amount GST will be charged.
For
the removal of doubts and for better clarity with respect to value of supply in case
of discounting under GST we
have explained the treatment of discount under GST in a detailed manner.
As
per Section 15 of CGST Act, 2017:
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 the document
issued by the supplier has
been reversed by the recipient of the supply.”
In
simple terms, under GST scenario there is no trade and cash discount has been
notified but Section 15 of
the CGST Act, 2017 has defined the provision of discount i.e. under GST
discount has been classified under
two categories:
- Discount is given before
or at the time of supply
- Discount is given after
supply has been made
The
details of these categories of discount are as under:
A. Discount is given before or at the time of supply:
In
this category if the supplier has given the discount at the time of
supply, the portion of discount
can be deducted from the transaction value at the time of supply and no GST
will be levied
on the portion of such discount. In
other words, to reduce the tax on the portion of discount following conditions
must be satisfied:
- Value of Discount
should be known at the time of supply
- The discount should be separately mentioned in the invoice
- The taxable value should be reduced from the such discount
Let’s
under this by example:
Mr.
Sanjay sell goods to Mr. Vikram worth Rs.1,00,000 and gives discount @ 10% i.e.
10,000/-. The GST rate
on the goods is 12%. In this case, transaction value and GST are as follow:
|
Value
of goods
|
1,00,000
|
|
Discount
|
10,000
|
Transaction value
|
90,000
|
|
CGST
@6%
|
5,400
|
|
SGST
@6%
|
5,400
|
|
Invoice Value
|
1,00,800
|
B. Discount is given before or at the time of supply:
In
this category if the supplier has given the discount after the supply has been
made, to reduce the
taxable value from such discount the following condition should be satisfied:
- Discount
is established in terms of an agreement before supply and specifically linked
to relevant invoices
- Input
Tax Credit (ITC) attributable to the discount is required to be reversed by the recipient.
In
other words, if both supplier and the receiver is aware of the discount before
the supply has
been made i.e. there is an agreement between the supplier and receiver before
the supply
mentioning the discount then the GST liability of the supplier should be
reduced from the
discount amount and against which credit note is issued by the supplier and
recipient has
to reduce his input tax credit for the same accordingly.
Beside
the above two categories of the discount mentioned above, there are some other
categories of
discount which are as follows:
1. Quantity discount/ early payment discount/ Price
reduction:
These
are that type of discount which has been give after the supply has been made
i.e. these are
not related to trade discount and if there is an agreement between the supplier
and recipient
related to these type of discount then the supplier has to issue the credit
note for the same
to the recipient and recipient have to reverse the input tax credit with the
value of credit note.
As
per Clarification issued provided by the CBIC vide Circular no
92/11/2019-GST dated 7th March
2019, if there is no
mutual agreement between the supplier and recipient related to these
types of discount before the time of supply then the supplier can issue the Financial Credit Note of such discount without GST because the condition mentioned under section 15 is not fulfilled.
Also,
As per Clarification issued provided by the CBIC vide Circular No.
105/24/2019-GST dated
28th June 2019 that the recipient shall not reverse the input tax credit
already availed if he
pays the supplier the entire value of tax charged on the original invoice along
with the taxable
value of supplies less value of financial credit note.
For
Example:
Mr.
Ram sells goods worth Rs.1,00,000 to Mr. Mohan including GST amounting to
Rs.10,000.
There
was no agreement related to discount at the time of sale. However, due to some
reason the
prices of the goods were reduced to by Rs.5000. Mr. Ram issues a financial
credit to Mr. Mohan
for Rs.5000.
In
this case, Mr. Mohan shall avail full input tax credit of Rs.10,000 provided –
- Discount
was not agreed at the time
- He
makes full payment of tax to supplier along with value of goods Rs.95,000
i.e. Amount of Tax Rs.10,000 plus value of supply Rs.85,000 (1,00,000 – 10000
(Tax) –5000
(Discount))
2. Post
sale discount where the dealer is required to do further Act:
As
per the circular issued by CBIC vide Circular No. 105/24/2019-GST dated 28-6-2019, in case of post-sale
discount is given by manufacture/wholesale dealer to dealer requiring the
dealer to undertake
further obligation like special sale drive, advertisement campaign, exhibition,
etc., the dealer
will be liable to issue a tax invoice to the supplier (manufacturer/wholesaler)
and charge GST.
The supplier of goods (manufacturer/wholesaler) can take Input Tax Credit of
such tax of GST
charged to him by the dealer. Also,
in case of post-sale discount is given by manufacture/wholesale dealer to
dealer without any
further obligation or action required at the dealer’s end, then the post-sales
discount given by
the said supplier will be related to the original supply of goods and it would
not be included in
the value of supply, in the hands of supplier of goods, subject to the
fulfillment of provisions of
sub-section (3) of section 15 of the CGST Act.
3. Additional
post-sale discount by the supplier to the dealer:
As
per the circular issued by CBIC vide Circular No. 105/24/2019-GST dated 28-6-2019, In order to
compete in the market, the manufacturer give additional discount to the dealer
for selling goods
to the customer at a low price. This additional discount is additional
consideration by the supplier
of goods (manufacturer/wholesaler) to the dealer. The dealer would be liable to
pay GST
on that amount.
4. Discounts
including ‘Buy more, save more’ offers:
- Sometimes,
the supplier offers staggered discount to his customers (increase in discount
rate with increase in purchase volume). For
example- Get 10 % discount for purchases above Rs. 5000/-, 20% discount for purchases
above Rs. 10,000/- and 30% discount for purchases above Rs. 20,000/-. Such discounts
are shown on the invoice itself.
- Some
suppliers also offer periodic / year ending discounts to their stockists, etc. For
example- Get additional discount of 1% if you purchase 10000 pieces in a year,
get additional
discount of 2% if you purchase 15000 pieces in a year.Such
discounts are established in terms of an agreement entered into at or before
the time
of supply though not shown on the invoice as the actual quantum of such
discounts gets
determined after the supply has been effected and generally at the year end. In commercial
parlance, such discounts are colloquially referred to as “volume discounts”. Such
discounts are passed on by the supplier through credit notes.
It
is clarified that discounts offered by the suppliers to customers (including
staggered discount
under “Buy more, save more‟ scheme and post supply / volume discounts established
before or at the time of supply) shall be excluded to determine the value of supply
provided they satisfy the parameters laid down in sub-section (3) of section 15
of the
said Act, including the reversal of ITC by the recipient of the supply as is
attributable.
For information regarding issuer, time limit of debit note and credit under GST please click
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