GST Clarification – Treatment of Secondary and Post-sale Discounts
by Reina Legal | Sep 15, 2025
The Central Board of Indirect Taxes and Customs has issued a Circular clarifying various doubts related to treatment of secondary and post-sale discounts under GST. The key aspects of the Circular are summarized below:
| Queries |
Clarifications |
| Whether full input tax credit (ITC) is available to the recipient of supply when a discounted payment is made to the supplier on account of financial/ commercial credit notes issued by the said supplier? |
- Recipient is not required to reverse ITC attributed to the discount basis financial/ commercial credit notes, as there is no reduction in the original transaction value of the supply
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| 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 as an inducement to supply of goods manufactured by him to the end customer? |
- Where there is no agreement between the end customer and the manufacturer – sale from manufacturer to dealer and from dealer to customer are independent transactions. Ownership transfers once the title passes, and the dealer acts on a principal-to-principal basis. Discounts given by the manufacturer are only to reduce the sale price for competitive reasons and not linked to any service. Thus, it cannot be treated as consideration or inducement
- In cases where the manufacturer has an agreement with an end customer to supply goods at a discounted price, and the manufacturer issues a commercial or financial credit note to the dealer, enabling such dealer to supply goods at the agreed discounted rate to the end consumer, such discount would be included in the overall consideration
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| Whether a post-sale discount extended by the manufacturer to the dealer can be treated as a consideration in lieu of the activities performed to promote the sale of goods? |
- When dealer receive such discounts and engage in promotional activities, the sale of goods that the dealer own are enhanced, thereby increasing their own revenue. Therefore, such discounts should not be treated as consideration for a separate transaction of supply of services
- In cases where the dealer undertakes specific promotional activities and such services are explicitly stated in the agreement with a clearly defined consideration payable for such supply, the dealer provides a distinct service to the supplier and GST would be leviable
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Click to download a copy of the Circular
