Discount HSN Code for Post-Sale Discount Under GST
- Nimisha Panda
- Sep 29
- 6 min read
With the GST system in India constantly evolving, businesses are getting creative with trade discounts and marketing strategies to boost their market share and attract new customers. Post-sale discounts are those given by sellers in the immediate aftermath of a sale or upon reaching specific milestones. However, these strategies often bump up against the tricky world of tax regulations. Taxpayers must grasp how discount accounting works under GST and how it affects the value of supplies to ensure compliance.
Table of Contents
How is Post-Sale Discount Under GST Treated?
Section 15(3) of the CGST Act of 2017 states that a discount can be given at any point—before, during, or after the supply period. To keep the value of the supply in check, it’s essential to record any discounts given before or during the supply right on the invoice. There are a few key requirements to consider if you want to modify the discount based on the supply's value after delivery is complete:
Any discounts offered should be stated in the contracts or terms agreed upon at the time of the supply, or even before that.
Discounts are to be associated with invoices.
The recipient must reverse the input tax credit related to those discounts.
When a supplier offers a discount based on the volume purchased by the buyer, it gets treated as a distinct supply of services. The buyer can then issue an invoice for the discount amount and apply GST to that invoice. In cases where the conditions mentioned earlier aren't satisfied, the supplier can provide a financial credit note without charging GST. As a result, the recipient is eligible to claim the complete input tax credit from the original invoice.
Output Liability on Post-Sale Discount Under GST
The effect of post-sale discounts on output liability is as follows:
When a discount occurs without any further requirements from the customer that match the terms agreed upon before or at the time of supply, that discount gets subtracted from the value of the supply. In this case, the supplier must issue a credit note to lower their output liability.
If a discount depends on a customer's performance, such as reaching a purchase goal, it will be a distinct transaction. In this case, the customer will act as a service provider and will need to issue a separate invoice to the supplier for the amount of the discount they qualify for.
When a supplier offers an extra discount to a dealer to help them lower the price for the final consumer, it boosts sales. We consider this extra discount a consideration from the supplier to the dealer. If the supplier requires the dealer to pass this benefit on to the customer, then the dealer must pay GST on the full value of the supply, which includes both the price offered to the customer and the discount received from the supplier. On the other hand, if the supplier doesn’t require the dealer to pass on the discount to the customer, that discount is seen as a commercial incentive. In this case, the supplier will need to issue a credit note, and the dealer won’t adjust the value of the supply for the final customer.
In situations where the discount isn't in line with Section 15(3), the supplier has the option to issue a financial or commercial credit note without changing any GST responsibilities. As a result, the input tax credit that the customer received at the time of the original supply will remain unaffected.
Discount HSN Code Under GST
Discounts themselves don’t carry an HSN code, as they serve as adjustments to the original tax invoice’s value. Therefore, it’s necessary to include the HSN code from the original invoice on the credit note too.
Examples of Post-Sale Discount Under GST
In Case 1, we have Mr. X, a supplier who sold goods valued at Rs 2,00,000 to his customer, Mr. Y. Moreover, Mr. X adds a shipping charge of Rs 15,000. He guarantees Mr. Y a 1% discount if he pays within 30 days and a 2% booking discount.
Supplier
| Recipient
| Transaction
| Value of Supply
| GST Applicable
| Remarks
|
Mr X | Mr Y | Sale | Rs 2,10,700 (Rs 2,15,000—Rs 4,300) | Yes | Discount on booking reduced from value of supply |
In Case 2, Mr. Y makes his payment within 30 days, so Mr. X will need to issue a credit note for Rs 2,107, plus GST. Since they agreed on these terms during the transaction, this amount is eligible for deduction from the original value.
Supplier
| Recipient
| Transaction
| Value of Supply
| GST Applicable
| Remarks
|
Mr X | Mr Y | Credit Note | Rs 2,107 (Rs 2,10,700 x 1%) | Yes | Discount shall lower the value of supply as terms were agreed at the time of supply. |
In Case 3, Mr. X and Mr. Y have an agreement that offers a special discount of 0.5%, but only if Mr. Y's total monthly purchases go over Rs 10,00,000. The following month, Mr. Y bought goods totaling Rs 15,00,000, which means he qualifies for an extra discount of Rs 7,500 plus GST.
Supplier
| Recipient
| Transaction
| Value of Supply
| GST Applicable
| Remarks
|
Mr Y | Mr X | Discount Performance Obligation | Rs 7,500 (Rs 15,00,000 x 0.5%) | Yes | Mr Y will issue a separate invoice to Mr X for such performance obligation. |
In Case 4, Mr. X offers Mr. Y an extra 2% discount to help boost sales, and Mr. Y is required to pass that discount along to the final consumer, Mr. Z. Initially, Mr. Y sold goods worth Rs 10,00,000, but after receiving the incentive from Mr. X, he sold them to Mr. Z for Rs 9,80,000.
Supplier
| Recipient
| Transaction
| Value of Supply
| GST Applicable
| Remarks
|
Mr X | Mr Y | Credit Note | Rs 20,000 (Rs 10,00,000 x 2%) | Yes | Mr X will issue a credit note to Mr Y effecting the additional discount provided |
Mr Y | Mr Z | Sale | Rs 10,00,000 (Rs 9,80,000 + 20,000) | Yes | Mr Y is required to pay GST on the whole value of the supply. |
In Case 5, if the supplier offers any discount or adjustment that doesn't fit the conditions mentioned above, Mr. X has the option to issue a commercial credit note to Mr. Y without applying any GST.
Credit Note for Post-sale Discount under GST
For a discount to take effect, the supplier must provide a credit note to the recipient. This note must get issued by November 30th of the next fiscal year, or by the day the annual return gets filed, whichever comes sooner. The effects of the credit note will be accounted for in the month it is issued.
Conclusion
Although using sales promotion programs and providing trade discounts are essential to a company's expansion, their impact on GST requires careful consideration. Compliance is a crucial component of modern enterprises since they can only avoid fines by understanding the legal framework, adhering to compliance standards, and maintaining thorough records.
FAQs
Q1. How are thepre-sale and post-sale discounts treated under GST?
When it comes to pre-sale discounts, the deduction gets applied to the taxable value. On the other hand, for post-sale discounts, you need to have an agreement in place beforehand to issue a credit note that lowers the GST.
Q2. Is GST Applicable on Free Samples?
Absolutely, free samples fall under the category of supply according to GST regulations, so GST must be paid unless there's a specific exemption in place.
Q3. Is TDS applicable on sales promotion expenses like gifts or freebies?
Yes, the TDS outlined in section 194R of the Income Tax Act kicks in when the value surpasses Rs. 20,000 for each recipient within a financial year.
Q4. Are businesses eligible to claim Input Tax Credit (ITC) for promotional expenses?
If the items or services are used for business activities and aren't expressly forbidden by GST regulations, an input tax credit on promotion expenses is available.
Q5. What is the GST classificationof sales promotion goods?
Sales and promotional items get categorized under HSN 2106 for food items or HSN 3303 for cosmetics, which means you need to clearly define the HSN code according to the nature of the products.
Q6. What is the HSN code applicable to discount on sales?
There isn't a specific HSN code that applies to discounts on sales. Discounts aren't categorized separately under HSN codes. If you offer discounts such as trade discounts or quantity discounts before or at the time of supply, GST won't apply to those discounts.
Q7. What is the SAC code for discount on sales?
There isn't a specific SAC code assigned for discounts on sales. Discounts aren't categorized separately under SAC codes. If discounts, such as trade discounts or quantity discounts, are applied before or at the time of the supply, GST won't apply to those trade or quantity discounts.
Q8. What is the HSN code applicable to rebate and discount?
For refunds and discounts, there isn't a unique HSN code. HSN codes do not classify them individually.
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