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TMI Blogdiscount details on invoiceX X X X Extracts X X X X X X X X Extracts X X X X ..... discount details on invoice X X X X Extracts X X X X X X X X Extracts X X X X ..... Reply By Sadanand Bulbule: The Reply: In terms of Section 7 of the CGST Act, "supply" includes supply of goods or services or both for a consideration. Section 2(31) of the GST Act defines "consideration" to mean a payment made or to be made whether as money or otherwise in response to the supply of goods. To the extent of pre-supply discount allowed by the supplier in the tax invoice, no consideration can be said to be received whatsoever. Further as per Section 9 of the GST Act, tax is to be levied on the value determined as per Section 15 of the Act. So refer Section 15(3)(b) of the CGST Act in conjunction with the clarification of the CBIC Circular No. 92/11/2019 dated 07/03/2019. Reply By YAGAY andSUN: The Reply: Thank you for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly stating your business model - this is a very practical scenario and quite common in electronics and FMCG distribution chains. Let's carefully address your two questions under the GST framework in India. 📌 Business Summary (for clarity): * You purchase a fridge from the manufacturer at Rs.25,000 + applicable GST. * You sell to the customer at Rs.24,000. * The manufacturer compensates you Rs.1,500 at the end of the month via credit note. * Your effective margin = Rs.500. * You are paying GST on your sale value of Rs.24,000, but claiming ITC on Rs.25,000. Now let's address your specific questions. 🔹 Question 1: Do I need to reverse ITC of Rs.1,000 that got accumulated? If yes, to whom? ✅ Answer: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No, ITC reversal is not required - if the following conditions are met: * You paid full GST on your purchase invoice (on Rs.25,000). * The manufacturer issued a credit note for the Rs.1,500 under Section 34 of the CGST Act with GST adjustment, and: * The credit note is reported in GSTR-1 by the manufacturer. * You accept the same in your GSTR-2B/GSTR-3B. 🔄 When Reversal Is Required: If the credit note issued by the manufacturer does not reduce the GST component, and is a pure commercial credit note (non-GST impact), then: * You retain full ITC. * You do not reverse any GST. But if GST is adjusted in the credit note (i.e., manufacturer reverses outward tax liability on that Rs.1,500), then you must also reverse propor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionate ITC (on Rs.1,500, say 18% = Rs.270) in your GSTR-3B. 🔧 Your case likely: * Since your sale price is lower, and the manufacturer adjusts with a credit note, you must check: * Whether the credit note includes GST (i.e., is it Rs.1,500 + GST or Rs.1,500 inclusive?) * If GST is reduced, proportionate ITC reversal is mandatory. * Otherwise, if it's a pure commercial incentive, no ITC reversal is needed. So, check the credit note structure. 🔹 Question 2: Should I raise invoice at Rs.25,000 and show Rs.1,000 discount on the invoice? ✅ Correct Way Under GST: Yes, you should issue tax invoice to the customer at actual transaction value, i.e., Rs.24,000 (your selling price). However, two options are possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 🔸 Option A - Invoice Value = Rs.24,000 (No mention of Rs.1,000 discount) * You issue invoice for Rs.24,000 (inclusive or exclusive of GST). * No discount field shown. * GST calculated on Rs.24,000. ✅ This is fully compliant as per Section 15(1) of CGST Act - "transaction value is price actually paid or payable." 🔸 Option B - Invoice Value = Rs.25,000, Less Rs.1,000 Discount = Rs.24,000 (With discount shown) * Invoice shows gross value of Rs.25,000. * Discount Rs.1,000 is shown on the face of invoice as per Section 15(3)(a) of CGST Act. * Net taxable value = Rs.24,000. ✅ This is also valid only if discount is known at or before supply, and is recorded in the invoice. 🚫 What you should NO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T do: You should not raise invoice at Rs.25,000, collect Rs.24,000 from customer, and not show the discount - this would be misleading. ✅ Summary: Issue Answer Reverse ITC of Rs.1,000? ❌ Not required, unless GST credit note is issued by manufacturer. If yes, reverse proportionate ITC. Invoice to customer ✅ Must be raised at actual selling price - Rs.24,000, either directly or via discount shown on invoice. SOP (Standard Operating Procedure) for this with invoice format and journal entries for business model involving discounted sales, manufacturer credit notes, and accounting reference. ✅ SOP for Selling Goods at Discounted Price with Manufacturer Compensation Step No. Business Activity Details / Action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Required GST & Accounting Treatment 1 Purchase of goods from manufacturer Goods purchased at Rs.25,000 + GST (say 18%) Claim full ITC on Rs.25,000 in GSTR-3B 2 Sale to customer below cost price You sell at Rs.24,000 (your invoice value) Issue invoice at actual transaction value (Rs.24,000). GST charged on Rs.24,000. 3 Compensation from manufacturer Manufacturer issues credit note of Rs.1,500 at month end Two possibilities: (a) With GST → You must reverse proportionate ITC (on Rs.1,500) (b) Without GST → No ITC reversal needed 4 Invoice format to customer Two options: - Option A: Invoice for Rs.24,000 directly - Option B: Invoice for Rs.25,000 with Rs.1,000 discount shown Both options valid under GST if discount i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s pre-agreed. Ensure discount is reflected on the invoice if you use Option B. 5 GST Return Filing File GSTR-1 & 3B as per actual sale (Rs.24,000), and claim ITC accordingly If GST credit note received, reverse ITC of GST on Rs.1,500 (e.g., 18% = Rs.270) in GSTR-3B 6 Accounting entries Example (Option A): Purchase: Inventory A/c Dr Rs.25,000 + ITC Rs.4,500Sale: Bank/Cash A/c Dr Rs.24,000Revenue A/c Cr Rs.20,338GST Payable Cr Rs.3,662Credit Note: Manufacturer A/c Dr Rs.1,500 Maintain clear ledgers for ITC and credit notes. Reconcile with 2B monthly. 📌 Notes: * Always verify whether the credit note issued by manufacturer includes GST. * If you're receiving only a commercial credit note, no ITC adjustment is needed. * Ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ep all communication/agreements with manufacturer regarding post-sale incentives documented.
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