Cases of GST on Post-Sales Discount Defined by CBIC

The Central Board of Indirect Taxes and Customs (CBIC) has issued clarifications to various concerns surrounding the post-sales discount given by a dealer in a transaction.

Discount for promotional activities by recipient taxpayer as a dealer:

First and foremost, it is clarified that the ‘nature’ of discount given must be identified to know the tax treatment of the same. In turn, this will decide whether the discount will form part of the value of supply under Section 15 of the CGST Act. 

Accordingly, where the post-sales discount is given by the supplier (here a manufacturer) to the recipient (here a dealer) without any additional obligation expected from the recipient, then such discount will not be included in the value of supply.

However, if the dealer has to do some promotional activities such as special sales drive, advertisement campaign, or exhibition after receiving the supply from his manufacturer, such an activity would be considered as a separate transaction altogether.

Therefore, in such cases, the discount received will be a taxable supply of service by the dealer to the manufacturer. The manufacturer can avail input tax credit (ITC) on the same.

Also Read: GST Policy Wing Clarifies Refund Process

Discount to recipient dealer for charging less to his customers (secondary discounts):

Secondly, if the dealer is offered the additional discount to reduce the prices for the customers in a move to improve sales, the discount would be referred to as consideration to the dealer for the supply of services to the customer.

In such cases, the supplier would be required to pay the additional discount as consideration and add it to the consideration payable by the customer to arrive at the value of supply. Registered customers shall be eligible to avail ITC of the GST charged by the concerned dealer.

ITC on the post-sale discount need not be reversed where credit note was issued:

As long as the dealer pays the value of supply as credit notes along with the original tax, the dealer will not have to reverse the ITC attributes on the post-sale discount offered by the supplier.

Earlier in March 2019, CBIC issued a circular addressing doubt regarding the treatment of sales promotion under GST. However, there were several concerns raised in the trade and industry sector pertaining to the tax treatment of secondary or post-sales discounts.

The above clarification was given to clear the doubts of several trade concerns pertaining to the GST treatment of the post-sales discounts.

Read through the circular for more details: CGST circular number 105/24/2019-GST dated 28th June 2019