Exclusion of Discount or incentive given before or at the time of supply [ Section 15(3) of CGST Act ] - GST Ready Reckoner - GST

Discount or incentive given before or at the time of supply Section 15(3) 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 document issued by the supplier has been reversed by the recipient of the supply. Note Wherever any discount is offered by the supplier to the recipient, by issuance of a tax credit note as per section 34 of the CGST Act , after the supply has been effected, the said discount can be excluded from the value of taxable supply only if the conditions of section 15(3)(b) the CGST Act are fulfilled. Such conditions inter alia includes the requirement of reversal of input tax credit by the recipient attributable to the said discount. Various Clarification on various doubts related to treatment under GST on Discount Schemes, Promotion Scheme , Incentive Schemes etc. 1. Where the discounts are offered by the suppliers through tax credit notes, after the supply has been effected, the said discount is not to be included in the taxable value only if the condition of section 15(3)(b)(ii) of the CGST Act, 2017 , for reversal of the input tax credit attributable to the said discount by the recipient, is satisfied. Provide a suitable mechanism for enabling the suppliers as well as tax officers to verify fulfilment of the condition of section 15(3)(b)(ii) of the CGST Act regarding proportionate reversal of input tax credit by the recipients in respect of such discounts given by the supplier by issuing tax credit notes after the supply has been effected. [ Circular No. 212/6/2024-GST dated 26.06.2024 ] 2. Clarification on applicability of GST on incentive paid by Ministry of Electronics and Information Technology (MeitY) to acquiring banks under Incentive scheme for promotion of RuPay Debit Cards and low value BHIM-UPI transactions under GST . [ Circular No. 190/02/2023- GST Dated 13.01.2023 ] The Council, it is hereby clarified that incentives paid by MeitY to acquiring banks under the Incentive scheme for promotion of RuPay Debit Cards and low value BHIM-UPI transactions are in the nature of subsidy and thus not taxable. 3. Clarification on Taxability of No Claim Bonus offered by Insurance companies . [ Circular No. 186/18/2022-GST Dated 27.12.2022 ] First issue :- Whether the deduction on account of No Claim Bonus allowed by the insurance company from the insurance premium payable by the insured, can be considered as consideration for the supply provided by the insured to the insurance company , for agreeing to the obligation to refrain from the act of lodging insurance claim during the previous year(s)? Clarification:- It is, therefore, clarified that there is no supply provided by the insured to the insurance company in form of agreeing to the obligation to refrain from the act of lodging insurance claim during the previous year(s) and No Claim Bonus cannot be considered as a consideration for any supply provided by the insured to the insurance company . Second issue :- Whether No Claim Bonus provided by the insurance company to the insured can be considered as an admissible discount for the purpose of determination of value of supply of insurance service provided by the insurance company to the insured ? Clarification :- It is, therefore, clarified that No Claim Bonus (NCB) is a permissible deduction under section 15(3)(a) of the CGST Act, for the purpose of calculation of value of supply of the insurance services provided by the insurance company to the insured . Accordingly, where the deduction on account of No claim bonus is provided in the invoice issued by the insurer to the insured , GST shall be leviable on actual insurance premium amount, payable by the policy holders to the insurer, after deduction of No Claim Bonus mentioned on the invoice. 4. Clarifications in respect of tax treatment in cases of secondary discounts or post sales discount . [ Circular No. 105/24/2019-GST dated 28.06.2019 Withdrawn vide Circular No. 112/31/2019 GST dated 03-10-2019 ] 5. Clarification on various doubts related to treatment of sales promotion schemes under GST. [ Circular No. 92/11/2019 GST Dated 07.03.2019 ] There are several promotional schemes which are offered by taxable persons to increase sales volume and to attract new customers for their products, these schemes have been examined and clarification on the aspects of valuation in the hands of the supplier. Free samples and gifts It is clarified that samples which are supplied free of cost, without any consideration, do not qualify as supply under GST, except where the activity falls within the ambit of Schedule I of the CGST Act 2017. It is a common practice among certain sections of trade and industry, such as, pharmaceutical companies which often provide drug samples to their stockists, dealers, medical practitioners, etc. without charging any consideration. Buy one get one free offer In case of offers like Buy One, Get One Free , one item is being supplied free of cost without any consideration. In fact, it is not an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply. It can at best be treated as supplying two goods for the price of one . Discounts including Buy more, save more offers:- 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 section 15(3) of the CGST Act , including the reversal of ITC by the recipient of the supply as is attributable to the discount on the basis of document (s) issued by the supplier. 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. Secondary Discounts It is hereby clarified that financial / commercial credit note(s) can be issued by the supplier even if the conditions mentioned in clause (b) of section 15(3) of the CGST Act are not satisfied. In other words, credit note(s) can be issued as a commercial transaction between the two contracting parties. It is further clarified that such secondary discounts shall not be excluded while determining the value of supply as such discounts are not known at the time of supply and the conditions laid down in clause (b) of section 15(3) of the CGST Act are not satisfied. These are the discounts which are not known at the time of supply or are offered after the supply is already over. For example , M/s A supplies 10000 packets of biscuits to M/s B at Rs. 10/- per packet. Afterwards M/s A re-values it at Rs. 9/- per packet. Subsequently, M/s A issues credit note to M/s B for Rs. 1/- per packet. Case law M/S. RAJESH KUMAR GUPTA OF M/S. MAHVEER PRASAD MOHANLAL ( 2022 (1) TMI 901 - AUTHORITY FOR ADVANCE RULING, MADHYA PRADESH) it was held that No GST is leviable on the receiver on cash discount/incentive/schemes offered by the supplier to the applicant through credit note against supply.