What Discounts Can Sales Promise on a Quote Without Raising Your GST? Section 15(3) for Sales Teams
Under Section 15(3), a discount on the invoice always lowers GST. A post-sale discount lowers GST only if it was agreed before or at the sale, is linked to specific invoices, and the buyer reverses the matching input tax credit. Otherwise, use a commercial credit note with no GST change. A Finance Act 2026 simplification still awaits notification.
Sales teams promise discounts every day: 3% for payment in 10 days, 2% if the dealer crosses ₹50 lakh this quarter, an extra scheme for Diwali. Each promise decides whether the company can cut GST when it pays the discount, or whether it pays GST on money it never received. This post explains Section 15(3) as it stands on 10 October 2026 and turns it into rules a sales team can follow on the quote.
The rule in Section 15(3)
The value of supply does not include a discount if:
- ✓(a) Discount before or at the time of supply: it is shown on the invoice. A trade discount printed on the invoice simply lowers the taxable value.
- ✓(b) Discount after the supply: all three conditions are met:
- it was established by an agreement entered into at or before the time of supply;
- it is specifically linked to the relevant invoices; and
- the recipient has reversed the input tax credit attributable to the discount.
If any condition fails, GST stays on the full invoice value. You can still pay the discount, but through a commercial (financial) credit note with no GST.
Since 1 October 2025, the proviso to Section 34(2) also blocks a supplier from reducing output tax through a GST credit note unless a registered buyer has reversed the matching credit. In practice the buyer must accept the credit note on IMS before your liability falls.
What each discount means for GST
| Discount type | When decided | GST treatment |
|---|---|---|
| Trade discount on the invoice | At the sale | Excluded from value; GST on the net price |
| Cash discount printed on the invoice and taken at the sale | At the sale | Excluded |
| Prompt-payment discount in the quote or contract, applied later by credit note against named invoices | Agreed before the sale | Excluded if the buyer reverses credit |
| Quarterly volume or target rebate in the dealer agreement signed before the sales | Agreed before the sale | Excluded if linked to the quarter's invoices and the buyer reverses credit |
| Scheme announced after the goods were sold | After the sale | Not excluded; commercial credit note only |
| Free unit in a "buy 10 get 1" deal | At the sale | Not a free supply; GST on the price actually charged for the lot |
Secondary schemes: Circular 251/08/2025-GST
On 12 September 2025, CBIC issued Circular 251/08/2025-GST on discounts that manufacturers give dealers after the sale. It says:
- ✓Commercial credit notes. If the supplier does not reduce its output tax, the dealer need not reverse input tax credit, even though it paid less. The original value and tax stand.
- ✓Discounts the dealer passes on to customers. Where goods are sold on a principal-to-principal basis and the manufacturer has no agreement with the end customer, the discount is a price reduction. It is not consideration for the dealer's onward sale and not payment for a service by the dealer.
- ✓Discounts agreed with the end customer. If the manufacturer has agreed a lower price with a specific end customer (for example, a corporate staff scheme) and reimburses the dealer by credit note, the discount is consideration from a third party and forms part of the value of the dealer's sale.
- ✓Promotional services. If the dealer is paid for specific services under a contract, such as co-branded advertising or display campaigns, with separately stated consideration, that is a taxable service by the dealer.
Circular 253/10/2025-GST then withdrew the 2024 instructions (Circular 212/06/2024-GST) that required CA certificates or buyer declarations as proof of credit reversal.
The Finance Act 2026 change: enacted, not yet in force
The Finance Act, 2026 (assent 30 March 2026) substitutes Section 15(3)(b). The new clause removes the requirements of a prior agreement and invoice linkage: a post-sale discount will be excluded if a credit note is issued under Section 34 and the recipient reverses the attributable credit. Section 34 is amended to match.
These sections come into force only on a date the government notifies. As of 10 October 2026 we found no such notification, so the three-condition test above still applies. Watch the CBIC notifications page; once notified, ad-hoc schemes will also qualify, as long as the buyer reverses credit.
A worked example
A Coimbatore cable and wire maker sells insulated cable at 18% GST to a dealer in Madurai. The dealer agreement signed on 1 April 2026 promises a 2% rebate on the quarter's invoices if purchases exceed ₹15 lakh.
- July–September purchases: ₹20,00,000 taxable, GST ₹3,60,000.
- Target met. Rebate = ₹20,00,000 × 2% = ₹40,000.
- The maker issues a GST credit note listing the quarter's invoices: value ₹40,000 + GST ₹7,200 = ₹47,200.
- The dealer accepts it on IMS and reverses ₹7,200 of credit. The maker's output tax falls by ₹7,200.
Later, in October, sales announces a ₹40,000 festive scheme for goods already sold. It was not agreed before the supply, so it can only be a commercial credit note of ₹40,000. The maker's GST stays at ₹3,60,000 and the dealer keeps its full credit. The net cost to the maker is ₹40,000 either way; the difference is that its GST is not reduced and the dealer's credit is not reversed.
Rules for the quote
- Put every discount you can foresee (cash, volume, target, scheme) in the quote or dealer agreement before the first invoice, with the period, slabs and how it will be settled.
- Say it will be settled by GST credit note against named invoices.
- Ask the buyer to accept credit notes on IMS within the month.
- Treat unplanned schemes as commercial credit notes with no GST, and price them knowing the tax stays.
- If the dealer is to do advertising or displays, write a separate service contract with its own fee and expect a GST invoice from the dealer.
Frequently asked questions
Does the dealer reverse credit on a commercial credit note?
No. Circular 251/08/2025-GST says no reversal is needed when the supplier has not reduced its output tax.
Is a cash discount for early payment taxable?
If it is printed on the invoice, it is excluded at once. If it is in the agreement and given later against named invoices by GST credit note, it is excluded once the buyer reverses credit.
Is there a time limit for the GST credit note?
Yes. Under Section 34, it must be declared by 30 November after the end of the financial year of the supply, or the date of the annual return if earlier.
Sources
- ✓Section 15 of the CGST Act, value of supply (Finance Act 2026 substitution shown as yet to be notified), CBIC
- ✓Section 34 of the CGST Act, credit and debit notes, CBIC
- ✓CBIC clarifies treatment of post-sale and secondary discounts, EY
- ✓Taxability of post-sale discounts: recent changes, Lakshmikumaran and Sridharan
- ✓Secondary and post-sale discounts under GST: a complete journey, TaxGuru
This is a summary, not legal advice. Confirm whether the Finance Act 2026 changes to Sections 15 and 34 have been notified on cbic-gst.gov.in before relying on them.
Written by
Founder, Airwix Technologies (Sleet)
Vatsal Sutariya is the founder of Airwix Technologies in Ahmedabad, the company that builds Sleet: SleetHR for HR and payroll, and Sleet Accounting for GST billing and books. He writes about GST, invoicing, business tax and choosing software for Indian businesses, and checks each rule against the official notification before it is published.
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