CBIC clarifies GST on post-sale discounts, no ITC reversal for buyers

New Delhi, Sep 13, 2025

The circular also stated that post-sale discounts given by manufacturers to dealers would not be treated as consideration for services

The Central Board of Indirect Taxes and Customs (CBIC) has clarified that buyers will not be required to reverse input tax credit (ITC) when suppliers issue post-sale financial or commercial credit notes, even if the payments are made at a discount.

A financial or commercial credit note is a document issued by a supplier to adjust the payment value for commercial reasons such as post-sale discounts or incentives, without reducing the original taxable value or GST liability.

In a circular issued on Friday, the Board said that such credit notes do not alter the taxable value of supplies, and therefore the supplier’s original tax liability remains unchanged. “The recipient will not be required to reverse the Input Tax Credit attributed to the discount provided on the basis of financial/ commercial credit notes issued by the supplier, as there is no reduction in the original transaction value,” the circular noted.

The circular also stated that post-sale discounts given by manufacturers to dealers would not be treated as consideration for services. Only in cases where dealers carry out distinct promotional activities such as advertising or co-branding under an explicit agreement would GST apply on the service element.

Abhishek Jain, partner & national head, Indirect Tax at KPMG in India, said, "This is a welcome circular as it provides much-needed clarity on the GST treatment of various types of discount transactions between manufacturers and distributors/dealers. The clarification will help industry and trade execute such transactions with greater certainty and reduce disputes around what has long been a contentious issue. At the same time, for scenarios involving agreements with end customers for passing on specific benefits to end-consumers through dealers in the supply chain, businesses may need to carefully revisit and evaluate their positions."

According to Saurabh Agarwal, Tax partner, EY, in light of these clarifications, businesses must revisit their contractual arrangements and tax positions.

"The government's clear demarcation between trade discounts and promotional services will significantly reduce interpretational disputes and provide greater certainty in compliance for the industry, paving the way for a more streamlined GST regime," Agarwal said.

[The Business Standard]