CASH DISCOUNT/TRADE DISCOUNT, CREDIT NOTE / DEBIT NOTE, Goods and Services Tax - GST

[SAFETAB LIFESCIENCE]

Dear Team,

What is the major difference from Cash Discount and Trade Discount. We are giving discount to our customers for making payment prior to agreed due date / credit periods. Discount is not worked on the basis of any percentage on the basic selling price. It is based on the number of days of payment made prior to the due dates. Whether we have to charge GST on the Discount amount. Whether we have to give Credit Note or we can get Debit Note from party or any one of the both can be used.

Whether, the issuance of Credit Note without GST is a mistake and leviable penalty under GST act. Because, some of our clients are asking Credit Note without GST and some of our clients are asking Credit Note with GST. The parties asking Credit Note with GST is giving their Debit Note also for the same transaction (i.e) the discount allowed by us. We are taking credit of ITC by using their Debit Note. Is it correct or not ??? (or) shall we have to reduce our GST liability by using our Credit Note declared in GSTR-1. Accounting wise, amount wise both are correct. But, as per GST act, which one is to be used.

Whether, The GST on Discount amount should be mentioned in Credit Note ?? Is it mandatory ???

Posts / Replies

[ANITA BHADRA]

Dear Sir

GST doesn’t differentiate between trade and cash discounts. Rather, GST segregates the discounts allowed into two categories:

1. those given before or at the time of supply
2. those given after the time of supply

• If a discount has been allowed before or at the time of supply, and it has been mentioned in the invoice separately, it will not be added in the value of supply.
• If discount is allowed after the supply, it may or may not be added in the value of the supply, depending on the following factors:

• whether the discount can be linked directly to the relevant invoice of supply,
• whether the discount has been allowed as per the terms already agreed upon before or at the time of supply, or
• whether the input tax credit related to the amount of the discount allowed has been reversed by the recipient of the supply.

If you have a policy of allowing a cash discount if a customer pays a particular invoice within specified days. the discount amount will not be added to the value of taxable supply. The customer must reverse the input tax credit (the amount of the discount allowed).

If you don't have pre decided policy of offering cash discounts to the customers at the time of payment, however, you supply to a customer who didn’t pay his debts. If now you offers the customer a discount in order to encourage the customer to clear all his debts, but the discount wasn’t agreed before or at the time of supply, and can’t be linked to a particular invoice, this discount will be added in the value of the taxable supply.

Regards

[ANITA BHADRA]

Further to my response ,

In case of discount where value shall stand reduced , a credit note can be issued by supplier not later that September 2018 or date of filing of return whichever is earlier ( Sec 34 (2) of CGST Act )

Credit note should have details ie . Taxable value ,Rate of tax and amount of tax credited .Clients ( Recipient ) can not issue debit note.

[YAGAY AND SUN]

Discounts, other than of mentioned on the Invoices, must be announced prior to giving it after the sales.

[subramanian vijayakumar]

I endorse Badra Ji views

[ROHIT GOEL]

In continuation to the discussion an example may be taken FMCG company raising Invoice of ₹ 10,000/- plus GST 1,800/- for ₹ 11,800/- and at the bottom of Invoice ₹ 450/- discount on account of schemes announced which is against earlier bills not linked to some pre defined agreement. FMCG Company has charged GST on total value and vendor will reduce this discount from purchases there by value of purchases recorded will be ₹ 9550/-( ₹ 10,000 - ₹ 450/-). However, sales as per FMCG will be ₹ 10,000/- eventually there will be reconciliation in purchase / sale amounts.

Can GST authorities ask GST from distributor on ₹ 450/-?

Can this reconciliation difference will be of any problem?

[vicky daryani]

hii sir

purchese main trade discount 18% kiya hai but gstr-2 main show kar raha but hsn code mang raha hai .to aage ki prosiser kya kare