Discounts Under GST: Latest Clarifications Guide

Discounts are a common part of business practices from cash discounts to trade incentives and post-sale rebates. However, when it comes to GST (Goods and Services Tax), the treatment of discounts isn’t always straightforward. Misunderstanding how discounts are taxed or how they affect Input Tax Credit (ITC) can lead to compliance issues.

In September 2025, the CBIC (Central Board of Indirect Taxes and Customs) issued Circular No. 251/08/2025-GST, clarifying several doubts about post-sale or secondary discounts under GST. This circular builds on earlier guidance and ensures consistent application of the law across India.

Let’s break down how various types of discounts are treated under GST, what the latest clarifications say, and how businesses should account for them.

1. What Are Discounts Under GST?

Under Section 15 of the CGST Act, 2017, the value of supply is the transaction value — i.e., the price actually paid or payable for goods or services. Discounts can reduce this value, but only when certain conditions are met.

Discounts under GST fall into two broad categories:

1. Pre-sale (or before-supply) discounts
   
   
2. Post-sale (or after-supply) discounts

The GST treatment depends on when and how the discount is given and whether it is known at the time of supply.

2. Pre-Sale Discounts – Fully Deductible from Transaction Value

When discounts are given before or at the time of supply and are clearly mentioned on the invoice, they can be directly deducted from the taxable value.

Example:
A supplier sells goods worth ₹1,00,000 but offers a 10% trade discount upfront.

• Invoice Value: ₹90,000
  
  
• GST is calculated on ₹90,000 only.

Such discounts do not attract any confusion as they are reflected in the invoice itself and are automatically considered while determining the taxable value.

3. Post-Sale or Secondary Discounts – The Grey Area

Post-sale discounts are offered after the invoice has been issued, often based on performance targets, sales volume, or promotional schemes. These are also known as secondary discounts.

The question that arises is: should these post-sale discounts reduce the taxable value, and do they affect ITC?

The latest CBIC Circular No. 251/08/2025-GST (dated 12 September 2025) provides much-needed clarity on this matter.

4. Key Clarifications from Circular No. 251/08/2025-GST

The circular addresses three major issues surrounding post-sale discounts and input tax credit. Let’s look at each in detail.

A. ITC in Case of Financial or Commercial Credit Notes

When a supplier issues financial or commercial credit notes (without GST adjustment) to give a discount to the buyer, the supplier cannot reduce their output tax liability, since the transaction value remains unchanged.

Clarification:
According to the circular:

• The supplier cannot reduce tax liability when a financial/commercial credit note is issued.
  
  
• Consequently, the buyer (recipient) is not required to reverse the ITC on such discounts because the original transaction value and tax charged remain the same.

This clarification reinforces Circular No. 92/11/2019-GST, ensuring that ITC remains unaffected for the recipient.

B. Are Post-Sale Discounts Consideration for Further Supply?

A recurring question is whether a discount offered by a manufacturer to its dealer (for selling to end customers at a lower price) can be treated as consideration for an inducement to supply goods.

Circular 251/08/2025 clarifies that:

• Where the dealer buys goods from the manufacturer and sells them independently to end customers, the transactions are principal-to-principal.
  
  
• Post-sale discounts given by the manufacturer are not considered for any supply of goods or services.
  
  
• These discounts simply reduce the sale price and cannot be treated as an inducement for further supply.

However, where a manufacturer has an agreement with the end customer to sell goods at a discounted rate and instructs the dealer accordingly, the discount given to the dealer acts as an inducement for such sales. In such cases, it forms part of the overall consideration.

C. Post-Sale Discounts as Consideration for Promotional Activities

Sometimes manufacturers give discounts to dealers for engaging in promotional activities, like:

• Conducting sales drives
  
  
• Advertising campaigns
  
  
• Co-branding or customization services
  
  
• Participating in exhibitions
  
  

The circular clarifies:

• If such activities are not part of a separate, documented agreement, the discounts are not taxable and cannot be treated as consideration for services.
  
  
• However, if the agreement specifically mentions these promotional activities with a defined monetary consideration, the dealer is considered to be providing a separate taxable service, and GST will apply on that component.

In essence:

A post-sale discount is not taxable unless it is tied to a clearly defined promotional service provided by the dealer.

5. Key Takeaways from the Latest Circular

6. Conditions for Post-Sale Discounts to be Deducted from Taxable Value

Under Section 15(3)(b) of the CGST Act, a post-supply discount can be excluded from taxable value only when:

1. The discount is established in terms of an agreement entered into before or at the time of supply.
   
   
2. The discount can be linked to specific invoices.
   
   
3. The recipient reverses the ITC proportionate to the discount received.

If any of these conditions are not met, the supplier cannot reduce the tax liability via a credit note.

7. Practical Implications for Businesses

Businesses especially those in manufacturing, FMCG, and distribution frequently offer or receive post-sale discounts. Based on the 2025 clarification:

• Manufacturers must assess whether discounts qualify as price reductions or are linked to promotional services.
  
  
• Dealers/distributors must ensure ITC is handled correctly — no reversal is needed for financial credit notes, but required if the supplier issues a GST credit note.
  
  
• Agreements should clearly specify the nature and timing of discounts to avoid future disputes.

8. Conclusion

The treatment of discounts under GST depends largely on the nature, timing, and documentation of the discount. With Circular No. 251/08/2025-GST, the CBIC has provided long-awaited clarity, ensuring uniform interpretation across industries.

To summarise:

• Pre-sale discounts are straightforward and excluded from taxable value.
  
  
• Post-sale discounts require careful treatment — only those meeting specific conditions can reduce taxable value.
  
  
• Financial credit notes do not affect ITC.
  
  
• Promotional discounts are taxable only when tied to defined services.

Businesses should regularly review their discount structures, agreements, and credit note practices to stay compliant under the GST framework.