The government has clarified that routine post-sale discounts will remain outside the ambit of GST unless such discounts are tied to certain specified ‘taxable’ activities.
The Central Board of Indirect Taxes and Customs (CBIC) has issued fresh guidelines on the Goods and Services Tax (GST) treatment of secondary or post-sale discounts, aiming to bring greater clarity and reduce litigation in an area that has long been contentious for businesses.
In a circular dated September 12, 2025, the CBIC has clarified that discounts cannot be reclassified as payments for promotional services unless dealers are contractually required to perform specified activities—such as advertising, co-branding or sales drives—in which case GST will apply on such services.
It says that post-sale discounts provided by manufacturers to dealers are generally not to be treated as “consideration” for supplies made by dealers to end customers, as these transactions operate on a principal-to-principal basis. Such discounts are seen as competitive price reductions, not payments for independent services.
The circular, however, says that where a manufacturer has a prior agreement with an end customer for reduced prices, and issues credit notes to dealers to facilitate the discount, such amounts will be considered part of the dealer’s overall consideration and attract GST.
The circular also clarifies that recipients of goods will not be required to reverse Input Tax Credit (ITC) when they receive post-sale discounts through financial or commercial credit notes, since the supplier’s original tax liability remains unchanged.
Tax experts said the clarification arrives at a crucial juncture, coinciding with the government’s broader GST 2.0 reforms and rate rationalisation agenda.
Rajat Mohan, Senior Partner, AMRG & Associates, noted: “The clarification draws a much-needed line of distinction— routine trade discounts remain outside GST as price reductions, while subsidies tied to end-customer pricing will be treated as additional consideration. It also separates dealer incentives from promotional services, unless there is a specific contractual arrangement.”
Manoj Mishra, Partner and Tax Controversy Management Leader, Grant Thornton Bharat, said the move provides long-awaited certainty. “By affirming that ITC remains unaffected by financial or commercial credit notes, it removes a major compliance concern. Businesses will, however, need to carefully document agreements and credit arrangements to avoid disputes,” he noted.