Sec.15 of the CGST Act, 2017, reproduced below
The value of the supply shall not include any discount which is given –
- Before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply
- After the supply has been affected, if –
# – 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
# – 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.”
The logical inference which could be drawn from the plain reading of above provision is:
- Discount, if mentioned on the face of the invoice, can be reduced from the taxable value of the supply of goods.
- Discount, even if not mentioned on the face of the invoice can be reduced from the taxable value, if following conditions are satisfied:
i) Discount is established in terms of an agreement before supply. In simple words, both supplier and recipient are aware and have agreed about the discount before the supply.
ii) Discount is linked to a specific supply invoice.
iii) ITC attributable to the discount is required to be reversed by the buyer or recipient of the supply.
GST liability of the supplier would be reduced if both supplier and receiver of the goods or services are aware of the discount before supply.
There will be no differentiation in GST between trade and cash discounts.
In fact, GST segregates the discounts allowed into two categories:
- Those given before or at the time of supply, and
- Those given after the time of supply.
Discount allowed before or at the time of supply, and it has been mentioned in the invoice separately, it will not be added in the value of supply.
Example: Company offers a 10 % discount on the sale of goods worth Rs. 200. If the company mentions the discount amount (Rs. 20) separately in the invoice, the value of the taxable supply will be Rs.180 (200–20).