Clarification on Secondary and Post-Sale Discounts under GST
- Shashank Mittal
- Sep 15
- 4 min read
The Circular 251/08/2025 dated 12/09/2025, issued by the Central Board of Indirect Taxes and Customs (CBIC), aims to provide clarity and ensure uniformity in the implementation of the law regarding the tax treatment of secondary or post-sale discounts under the Central Goods and Services Tax Act, 2017 (CGST Act).
Main Themes and Key Clarifications:
The circular addresses three primary issues concerning post-sale discounts, focusing on input tax credit (ITC) availability, the treatment of discounts as "consideration" for inducement of further supply, and whether discounts can be considered consideration for promotional activities.
Input Tax Credit (ITC) Availability on Financial/Commercial Credit Notes
Core Idea: Recipients of supply are entitled to full input tax credit even when they receive financial/commercial credit notes from the supplier, as long as these notes do not reduce the original transaction value and corresponding tax liability.
Key Fact/Clarification: The recipient will not be required to reverse the Input Tax Credit attributed to the discount provided on the basis of financial/ commercial Credit notes issued by the supplier, as there is no reduction in the original transaction value of the supply and accordingly the corresponding tax liability would also not get reduced.
Reasoning: Section 16(1) of the CGST Act allows registered persons to take credit of input tax. Previous circulars (No. 92/11/2019-GST dated 7th March 2019) clarified that suppliers issuing financial/commercial credit notes are not eligible to reduce their original tax liability. Therefore, if the original tax charged remains unchanged, the recipient's ITC entitlement also remains unaffected.
Post-Sale Discounts as "Consideration" for Inducement of Further Supply (Manufacturer to Dealer/End Customer)
Core Idea: Generally, a post-sale discount from a manufacturer to a dealer for subsequent sale to an end customer is not treated as consideration for the inducement of further supply, unless there's a specific agreement between the manufacturer and the end customer.
Key Fact/Clarification (General Case): In a principal-to-principal transaction between manufacturer and dealer, where the dealer takes ownership of goods, these discounts are simply given for competitive pricing to push sales and merely reduce the sale price of the goods and are not linked to any independent activity rendered to the manufacturer.
Key Fact/Clarification (Specific Case - Manufacturer-End Customer Agreement): In cases where the manufacturer has some agreement with an end customer to supply goods at a discounted price, the manufacturer may issue commercial or financial credit notes to the dealer, enabling such dealer to provide the goods at the agreed discounted rate to the end consumer. Therefore, it is clarified that such a post-sale discount, given by the manufacturer to the dealer for supplying goods to the end customer at a discounted rate, should be included in the overall consideration as it is an inducement towards the supply of goods by the dealer to the end customer.
Reasoning: Section 2(31) of the CGST Act defines consideration to include the monetary value of any act for the inducement of supply. The circular distinguishes between two independent sale transactions (manufacturer to dealer, dealer to end customer) and situations where the manufacturer has a direct agreement with the end customer to offer a discounted price, thereby influencing the dealer's supply at that price.
Post-Sale Discounts as "Consideration" for Promotional Activities by Dealers
Core Idea: Post-sale discounts extended by a manufacturer to a dealer are generally not treated as consideration for promotional activities performed by the dealer, as these activities primarily benefit the dealer in selling their own goods. However, GST would be leviable if specific promotional services are explicitly agreed upon with clearly defined consideration.
Key Fact/Clarification (General Case): The discount merely reduces the sale price of the goods and is not linked to any independent service rendered to the manufacturer. Therefore, it is clarified that post-sale discounts offered by manufacturers to dealers in such cases shall not be treated as consideration for a separate transaction of supply of services.
Key Fact/Clarification (Specific Case - Explicit Services): GST would be leviable in cases where a dealer undertakes specific sales promotional activities, such as advertising campaigns, co-branding, customization services, special sales drives, exhibition arrangements, or customer support services, etc., only when such services are explicitly stated in the agreement with a clearly defined consideration payable for such a supply. In such cases, the dealer provides a distinct service to the supplier, and accordingly, GST would be chargeable.
Reasoning: The circular differentiates between general efforts by dealers to boost sales of goods they own (where the discount just reduces their purchase price) and a distinct, agreed-upon service provided by the dealer to the manufacturer for promotional purposes, for which a separate consideration is stipulated.
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Disclaimer: This GST update has been compiled for our clients and team of Seth & Associates. The same is not being circulated with the intent of advertising or soliciting any professional work. This update is only for the purpose of ease of understanding.
For a detailed discussion and professional advisory on matters related to GST kindly contact:
CA Dhruv Seth CA Shashank Mittal
Partner – GST HOD - GST
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