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Additional discount given by a company to a dealer will attract GST

The government had issued a clarification on various doubts related to treatment of secondary or post-sale discounts for applicability of GST.

In the clarification, the Finance Ministry said that the additional discount given by a company to a dealer in certain cases will be liable to Goods & Services Tax (GST).

Companies that offer additional discounts to their dealers as incentives and ask them to conduct advertising campaigns, exhibitions etc. to promote their brand/products. It would qualify as a supply by the dealer to the company and the GST provisions shall be applicable in the hands of the dealer.

Similarly, additional discount given to dealers for special reduced price to increase the sales, will be liable to GST I.e. GST will be payable on the amount including the discount value.

According to the circular, where any reduction in prices are allowed by supplier to dealers with the condition of the same being passed on by the dealers to the end customer, it would be added to the value of supply of dealer to consumer for payment of GST.

In case the customer is registered, he/she will be eligible to claim ITC (Input Tax Credit) of the tax charged by the dealer only to the extent of the tax paid by the said customer to the dealer.

The circular further said that there will be no reduction in ITC in case of financial / commercial credit notes. The dealer will not be required to reverse ITC attributable to the tax already paid on such post-sale discount received by him through issuance of financial / commercial credit notes.

For example, if a dealer purchases goods worth ₹ 10,000 from a supplier and pays 18% GST (₹ 1,800), and later gets a discount of ₹ 1000 from the supplier in the form of a credit note, he/she will be able to claim ITC on ₹ 1,800. Previously, the industry had doubts if businesses would be eligible to claim any credit on the amount for which a credit note has been issued.

Author: Niranjan Reddy

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