- Pre-Supply Discount: If the discount is provided before or at the time of supply and is mentioned in the invoice, it is subtracted from the taxable value of the supply. For example, if a seller offers a 20% discount on goods worth ₹1000, the taxable value will be Rs 800 (Rs 1000 – Rs 200).
- Post-Supply Discount: Discounts provided after the supply is made are allowed only if they are explicitly mentioned in the agreement entered before the supply. They must also be linked to the specific invoice and, in such cases, the recipient must reverse the input tax credit attributable to the discount.
- Cash Discounts: Similar to trade discounts, cash discounts are treated the same under GST and can be deducted if provided in the invoice or in terms of a prior agreement.
- Ad-hoc Discounts: Post-supply discounts that are not pre-agreed upon or are provided without any formal documentation cannot be subtracted from the taxable value of the supply.
Valuation of supply under GST: Discounts
Discounts given before or at the time of supply will be allowed as deduction from transaction value. Such discounts must be clearly mentioned on the invoice.
Discounts given after supply will be allowed only if
- It is mentioned in the agreement entered into before sale AND
- input tax credit proportionate to the discount has been reversed by the recipient of the supply AND
- It can be clearly tracked to relevant tax invoice
FAQs
Q1. How are discounts treated under GST?
Discounts can be deducted from the taxable value of goods or services if provided before or at the time of supply and recorded in the invoice. Post-supply discounts are allowed only if they are specified in a prior agreement.
Q2. What is a post-supply discount, and how does it affect the value of supply under GST?
A post-supply discount is offered after the supply has occurred. It can reduce the taxable value if it is linked to an agreement entered before the supply, and the recipient reverses the input tax credit.
Q3. What is a pre-supply discount, and how does it affect the value of supply under GST?
A pre-supply discount is given before or at the time of supply and must be mentioned in the invoice. It is subtracted from the taxable value, reducing the GST liability.
