GST On Post-Sale Discounts: Key Clarifications in CBIC Circular

The CBIC, through Circular No. 251/08/2025-GST dated 12 September 2025, has provided important clarifications on the treatment of post-sale discounts under GST. These clarifications address complexities around Input Tax Credit (ITC), consideration, and taxability of promotional services.

Key Issues and Clarifications for GST On Post-Sale Discounts

1. Availability of ITC on Discounts through Financial/Commercial Credit Notes

Issue:
Whether the full input tax credit is available to the recipient of supply when the recipients make discounted payments to the supplier of goods on account of financial/ commercial credit notes issued by the said supplier?

Clarification:
The recipient is not required to reverse the Input Tax Credit (ITC) arising from discounts provided through financial or commercial credit notes issued by the supplier. This is because the original transaction value of the supply remains unchanged, and consequently, the corresponding GST liability is unaffected.

Illustration:

Party	Transaction	Amount (₹)	GST / ITC Treatment
Manufacturer	Sells goods to Dealer	1,00,000	GST 18% → 18,000
Dealer	Claims ITC on purchase	–	ITC claimed 18,000
Manufacturer	Issues post-sale discount via Financial Credit Note	10,000	No GST impact, purely financial adjustment
Dealer	Adjust payment	–	ITC remains 18,000; no reversal required

2. Treatment of Post-Sale Discounts as Consideration for Dealer’s Supply

Issue:
Whether a post-sale discount offered by a manufacturer to its dealer/distributor would be treated as a consideration paid by the manufacturer for the dealer’s supply of the same goods to the end customer?

Case 1 – Without Pre-existing Agreement with End Customer

• The transaction is treated as two separate sales: manufacturer to dealer, dealer to end customer.
• Manufacturer-dealer relationship is principal-to-principal.
• Discounts via financial credit notes are not consideration under GST.

Illustration:

Party	Transaction	Amount (₹)	GST Treatment / Notes
Manufacturer	Sells goods to Dealer	1,00,000	GST Payable (18%) = 18,000
Dealer	Claims ITC on purchase	18,000	Full ITC claimable, subject to Section 16 conditions
Manufacturer	Issues post-sale discount via Financial Credit Note	10,000	No GST charged on discount
Dealer	Sells goods to end consumer	1,50,000	GST Payable (18%) = 27,000

Case 2 – With Pre-existing Agreement with End Customer

• Discount becomes an inducement for supply.
• Considered part of dealer’s overall consideration.

Illustration:

Party	Transaction	Amount (₹)	GST Treatment / Notes
Manufacturer	Sells goods to Dealer	1,00,000	GST Payable (18%) = 18,000
Dealer	Claims ITC on purchase	18,000	Full ITC claimable, subject to Section 16 conditions
Dealer	Sells goods to end consumer	1,50,000	GST Payable (18%) = 27,000 (Rs 1,40,000 + 10,000 from manufacturer)
Manufacturer	Issues post-sale discount via Financial Credit Note	10,000	Considered as consideration, GST charged

3. Treatment of Post-Sale Discounts as Consideration for Promotional Activities

Issue:
Whether a post-sale discount extended by the manufacturer to the dealer can be treated as a consideration in lieu of promotional activities?

Case 1 – Dealer’s Own Promotional Activities

• Dealer funds campaigns from own pocket.
• Manufacturer’s discount = price reduction only, not service consideration.

Illustration:

Transaction	Amount (₹)	GST / ITC Treatment
Manufacturer sells goods to Dealer	1,00,000	GST @18% = 18,000 → ITC of 18,000
Dealer Promotion (Own Campaign)	2,000 + Free Power Bank 1,000	Funded by Dealer; no GST from Manufacturer
Manufacturer provides discount (Financial Credit Note)	2% of purchase value = 2,000 per unit	No ITC reversal; not treated as service

Case 2 – Promotional Activities under Agreement

• If activities are documented in a written agreement, GST applies.
• Dealer = service provider, Manufacturer = service recipient.

Illustration:

Party	Activity	Amount (₹)	GST Treatment / Notes
Manufacturer	Requests Dealer to set up branded display stand	–	Promotional activity arranged
Manufacturer	Issues Financial Credit Note to Dealer	10,000	Considered payment for service
Dealer	Raises Tax Invoice to Manufacturer	10,000	GST 18% = 1,800
Manufacturer	Avails ITC (if eligible)	1,800	ITC claimable

The Final Thought

The CBIC’s clarifications ensure uniform GST treatment for post-sale discounts. Businesses must carefully assess whether a discount is:

• A financial adjustment (no GST impact),
• An inducement (part of consideration), or
• A payment for services (GST applicable).

This distinction is critical for accurate ITC claims and avoiding disputes during GST audits.

Frequently Asked Questions

Q1. Do dealers need to reverse ITC when they receive post-sale discounts?

No, ITC reversal is not required if the discount is given via a financial or commercial credit note without GST impact.

Q2. Are post-sale discounts always considered part of supply consideration?

No, only if there is a pre-existing agreement with the end customer making the discount an inducement.

Q3. Is GST applicable when discounts fund dealer promotions?

Only when promotional activities are explicitly covered under a written agreement with defined consideration.

Q4. Can manufacturers claim ITC on GST paid for dealer promotional services?

Yes, if promotional services are invoiced with GST and meet Section 16 conditions, manufacturers can avail ITC.