Under GST, valuation of available flexibly is a basic angle. While the valuation of flexibly different focuses should be thought of and one such territory is limits and its treatment.
A ton of disarray among organizations and CA’s concerning treatment of different limits offered and got by a business.
Concerning this, an explanation was given by CBIC through Circular number 105/24/2019 where post-sale discount treatment has been talked about.
Let us presently comprehend the treatment of limits under GST in detail.
Legal Provisions for GST on Discounts
Limits are commonly given by the provider to support sales or urge the purchaser to pay speedily. Treatment of limits is characterized in Section 15(3) of CGST Act, 2017. The segment expresses that –
The estimation of flexibly will exclude any discount which is given–
• Before or at the hour of the flexibly if such markdown has been properly recorded in the receipt given in regard of such gracefully; and
• After the flexibly has been affected, if—
(I) such discount is set up as far as an understanding went into at or before the hour of such flexibly and explicitly connected to important solicitations; and
(ii) Input Tax Credit as is owing to the discount based on record gave by the provider has been switched by the beneficiary of them gracefully.
From above, we can characterize discount dependent on season of limits –
(1) Discounts given previously or at the hour of the offer
(2) Post-sale Discounts.
The treatment of GST relies upon the kind of markdown which we will currently find in detail.
Discounts are given before or at the time of sale
Example 1 – Mr X sells goods to Mr Y worth Rs 50,000 and gives Rs 1000 discount for cash payment. GST applicable is 18%. Transaction value and GST will be calculated as follows –
Value of Goods
(Less) – Discount
Transaction Value of Goods
(+) CGST @ %9
(+) SGST @ %9
Discounts that are given before or at the time of sale can be deducted from transaction value at the time of sale; no GST will be levied on the same. However, such discounts shall be mentioned on the tax invoice.
- Post sale discounts
Post sale discounts are those which are given by the supplier after the sale has been effected.
Post sale discounts can be classified into 3 categories –
# Discount agreed at the time of supply
# Discount not agreed at the time of supply
# Discount with an additional burden to do some act
(a) Discount agreed at the time of supply –
A supplier has to issue a GST credit note where the recipient or buyer has fulfilled the terms of the agreement.
The recipient has to reduce the amount of GST as mentioned in credit note from the input tax credit already availed against that supply. Thus, we can understand that one has fulfilled the following conditions –
# Discount terms are agreed at the time of supply
# Input tax credit on the discount has been reversed by the recipient of the supply
# Such discount can be linked to that particular supply or invoice
# Credit note is issued within six months from the end of the financial year
(Less) – IGST @
Credit Note Value
Mr Y will have to reverse Rs 18 from input tax credit availed earlier.
(b) Discount not agreed at the time of supply –
Sometimes, discounts are provided even if the same are not agreed with the supplier at the time of supply. Such discounts are generally given for bulk quantity, early payment, price reduction, etc.
In such cases, where the discount was not agreed at the time of sale, credit note with GTS cannot be issued as it does not satisfy the conditions of section 15(3).
However, as per clarification provided by CBIC vide Circular No. 92/11/2019-GST dated 7th March 2019, a supplier can issue a financial credit note for such discounts. Such credit notes will not have GST.
Further, CBIC has also clarified vide Circular No. 105/24/2019-GST dated 28th June 2019 that the recipient shall not reverse the input tax credit already availed if he pays the supplier the entire value of tax charged on the original invoice along with the taxable value of supplies less value of financial credit note
Mr X sells goods worth Rs 50,000 to Mr Y including GST amounting to Rs 4000. No discount was agreed at the time of sale. However, due to some reason, the prices of the goods was reduced to by Rs 1000. Mr X issues a financial credit to Mr Y for Rs 1000.
In this case, Mr Y shall avail full input tax credit of Rs 4000 provided –
# Discount was not agreed at the time
# He makes full payment of tax to the supplier along with the value of goods
Rs 49000 i.e. Amount of Tax Rs 4000 plus value of supply Rs 45000 (50,000 – 4000 (Tax) – 1000 (Discount))
(c) Post-sale discount gave on the satisfaction of certain commitment –
Where a discount is given to a seller/beneficiary just on conforming to specific commitments like promotion, shows, sales drive, and so forth, such limits gave will be treated as a discrete exchange.
According to explanation gave by CBIC vide Circular No. 105/24/2019-GST dated 28th June 2019, such exchange will be treated as an isolated exchange among provider and beneficiary and the beneficiary will give an expense receipt for such exchange that will be remunerated by the provider. A provider can likewise profit input tax reduction on the equivalent.
Treatment of markdown in the books of provider and the beneficiary will rely upon the conditions under which such discount has been given. One of the significant focuses to be considered is whether the markdown concurred at the hour of offer or not.