Discounts conundrum in the GST regime

[Pradeep Reddy]

GST and Customs Solutions Designed To Empower Your Business

March 26, 2025

Have you ever wondered how the ‘Buy One, Get One Free’ offer at your favorite retail store affects GST liability?

Discounts play a crucial role in sales strategies across industries, helping businesses attract customers and boost revenue. Many businesses face challenges in determining the tax implications of various discounts under GST.

With the introduction of the Goods and Services Tax (GST), the taxation of discounts has become a contentious issue. The transition from the erstwhile VAT regime to GST has not only retained existing complexities but has also introduced new layers of compliance challenges, often leading to disputes.

This article delves into the impact of GST on different types of discounts and highlights the latest legal precedents.

Types of Discounts and Their GST Implications

Latest Compliance Requirements

• Certification for ITC Reversal: Businesses that availed reduction of taxable value in terms of Section 15 (3) (b) should obtain certificates from Chartered Accountants (CAs) to confirm the ITC reversals by the recipient, as mandated by the CBIC Circular No. 212/6/2024-GST dated June 26, 2024.
• Invoice Management System (IMS): The newly proposed IMS requires recipients to accept or reject invoices and credit notes. This ensures ITC reversal compliance under Section 15(3)(b), potentially eliminating the need for CA certification.

Industry-Specific Scenarios

Discounts are a double-edged sword in the GST framework—while they help businesses drive sales, they also bring compliance challenges. Ensuring alignment with GST law is crucial to avoid/reduce disputes.

Key Takeaways

✅ Align Discount Strategies with GST Law: Ensure that discounts comply with Section 15(3) of the Act to prevent unnecessary litigation.

✅ Maintain Comprehensive Documentation: Keep a well-organized record of discount agreements, invoices, and credit notes to support any claims for taxable value reductions.

✅ Obtain CA Certification for ITC Reversal: If you choose to issue GST credit notes, ensure compliance with the CBIC guidelines by obtaining CA certification.

✅ Consider Financial Credit Notes for Simplicity: If record-keeping and compliance become too cumbersome, opt for financial credit notes instead of GST credit notes, as they do not impact ITC

✅ Avoid Common Pitfalls: Misclassification of discounts, failure to pre-agree terms, and inadequate documentation.