In an effort to ensure consistent and uniform interpretation of GST law across India, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 251/08/2025-GST on 12th September 2025. This circular addresses a range of issues surrounding the tax treatment of secondary or post-sale discounts, a matter of practical importance for manufacturers, dealers, and tax professionals.
The circular provides detailed clarifications on how such discounts are to be treated under the Central Goods and Services Tax (CGST) Act, 2017, particularly regarding Input Tax Credit (ITC) and whether such discounts amount to additional consideration for services.
Understanding the Context
In the commercial world, manufacturers often offer post-sale discounts or financial/ commercial credit notes to their distributors or dealers to incentivize sales. However, questions have emerged about how these discounts interact with GST—specifically, whether they affect input tax credit, constitute consideration for additional supply, or fall under inducement provisions of the law.
The new circular lays out clear guidance on these points to remove ambiguity.
Key Clarifications from the Circular
1. Input Tax Credit (ITC) and Financial Credit Notes
- When a manufacturer issues a financial or commercial credit note (not linked to tax invoice reduction), the transaction value remains unchanged, and tax liability is not reduced.
- In such cases, the recipient of supply is entitled to full ITC even if the payment made is after deducting the discount.
- There is no need for ITC reversal, as the credit note does not affect the original taxable value.
This clarification provides relief to recipients who were unsure whether discounted payments would jeopardize their input tax eligibility.
2. Discounts as Consideration for Further Supply
- Post-sale discounts offered by a manufacturer do not qualify as consideration for the dealer’s supply of goods to the end consumer if there is no agreement between the manufacturer and the end customer.
- These are viewed as two independent transactions—one between manufacturer and dealer, and another between dealer and end customer.
- Thus, the discount is merely a pricing strategy, not a form of inducement or payment for further supply.
However, if a manufacturer has a direct agreement with the end customer to provide goods at a discounted rate—enabling the dealer to offer such discounts—then the discount does become part of the consideration, since it forms a condition of the sale.
3. Discounts for Promotional Activities
- If a dealer receives a discount but no specific obligation to perform promotional activities is mentioned in any agreement, the discount does not amount to payment for a service, and no GST is applicable.
- On the other hand, if the dealer provides specific services—like advertising, co-branding, exhibitions, sales drives, or customer support—and there is a clear agreement with defined consideration, then GST is chargeable on that service supply.
Impact and Implications
This circular has significant implications for businesses and tax professionals:
- It removes uncertainty on ITC in cases of post-sale discounts.
- It clearly differentiates between price reductions and taxable services.
- It guides businesses in structuring discount agreements carefully—particularly avoiding the risk of unexpected tax liabilities.
Conclusion
With Circular No. 251/08/2025-GST, CBIC has taken a much-needed step to align the practical realities of trade with the legal framework of GST. Businesses can now offer commercial discounts with greater clarity on their tax positions, provided they follow proper documentation and avoid mixing promotional activities without formal agreements.
Stakeholders are advised to issue trade notices for wider dissemination of these clarifications and consult their GST advisors to realign discount practices accordingly.