News Flash: Treatment of Discounts

With the renewed focus on the retail trade and especially on the treatment of discounts etc., CBIC has issued a Circulars clarifying on the applicability of GST on the post supplies discounts vide Circular No. 92/11/2019-GST Dated 07.03.2019 clarifying on the applicability of GST and availability of input tax credit. Similarly, CBIC has issued a Circulars clarifying on the applicability of GST on the additional discounts given by supplier for promotional activities vide Circular No. 105/24/2019-GST Dated 28.06.2019. These Circulars clarified on the applicability of GST and availability of input tax credit:

Particulars Remarks
Free Sample and Gifts 1.     Applicability of GST: As there is no underlying consideration, it will not amount to supply and hence GST is not applicable;

2.     Availability of input tax credit: If samples and gifts are supplied on free of cost basis, credit is not allowed as per Section 17. However, if it amounts to supply as per Schedule 1 of CGST Act, supplier would be eligible for ITC on such goods.

Buy one get one free 1.    Applicability of GST: These are two goods supplied at a single price. Will be a composite or mixed supply as per CGST Act;

2.    Availability of input tax credit: Supplier would be eligible for ITC.

Buy More Save more offers wherein additional discount is given on the face of invoice on purchase of increased quantity 1.     Applicability of GST: The value of discount will be reduced from the taxable value as per Section 15 of CGST Act;

2.     Availability of input tax credit: Supplier would be eligible for ITC on inputs, input services and capital goods.

Volume Discount wherein the post supply discounts are given based on an agreement prior to supply 1.    Applicability of GST: The value of discount will be reduced from the taxable value as per Section 15 of CGST Act including reversal of credit based on credit note under Section 34 of CGST Act. Thus, conditions mentioned under Section 15 and Section 34 of CGST Act, 2017 have to be satisfied simultaneously;

2.     Availability of input tax credit: Supplier would be eligible for ITC on inputs, input services and capital goods.

Secondary discounts i.e. which are not known at the time of making the supplies 1.    Applicability of GST: These discounts will not be allowed as deduction from the taxable value as conditions mentioned under Section 15 of CGST Act, 2017 are not satisfied.

The supplier can issue a commercial credit note to such an extent.

2.    Availability of input tax credit to recipient: Recipient would be eligible for ITC provided it has paid the taxable value after adjusting the commercial credit note and the tax amount as mentioned in the original invoice.

Circular No. 92/11/2019-GST Dated 07.03.2019

        

Treatment of Additional Discounts

Particulars Remarks
Post supply discounts wherein recipient is obliged to perform any activity like undertaking special sales drive, advertisement campaign, exhibition etc. 1.       Applicability of GST: These will be treated as separate transaction of supplies by recipient to the supplier. Thus, appropriate GST will be applicable;

2.       Availability of ITC: Supplier can avail the ITC on such supplies.

Post supply discounts wherein recipient is not obliged to perform any activity like undertaking special sales drive, advertisement campaign, exhibition etc. 1.       Applicability of GST: These will be in continuation of original supplies and such a discount will be reduced from the taxable value in accordance with Section 15(3) of CGST Act, 2017;

2.       Availability of ITC: Supplier would be eligible for ITC

Additional discounts given by supplier to dealer so as to enable dealer to offer special reduced prices to customer 1.       Applicability of GST: It has been clarified that such additional discounts will be represent the consideration payable by customer to dealer but paid by supplier to dealer. Thus, dealer will be liable to discharge GST on the additional discounts received by it from supplier and passed on to the customer;

2.       Availability of credit: Customer will be entitled for the ITC

Circular No. 105/24/2019-GST Dated 28.06.2019


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