Please explain Post Discount under GST.
How to deal in accounts books
GST law does not distinguish between trade discounts, cash discounts, volume/turnover discounts, etc.. Instead, it classifies discounts into:
Discount given before or at the time of supply, and
Discount given after the supply has been effected.
The treatment and taxability in both these cases are as below:
Discount given before or at the time of supply: Such discount will be allowed as deduction from the value of supply if it is recorded in the invoice.
For example, at the time of sale for Rs.1,000, you provide a discount of 10%. While making the tax invoice, you must specify the price as Rs.1,000 and deduct discount of Rs.100 through a separate line item, and arrive at the taxable value of Rs.900. Apply the GST rate on Rs.900 (value after discount) to arrive at the GST to be collected and remitted.
Discount given after the supply has been effected: These discounts are generally of the nature of periodical turnover/volume discounts or incentives, allowed for buying a particular value of goods/services during a period. Such discounts will be allowed as deduction from the value of supply only if the following conditions are satisfied:
There must be written agreement between the supplier (seller) and the receiver (buyer), prior to the time of supply, mentioning the discount that will be allowed. Further, such discount must be mapped to the the relevant invoices against which such discount is being given now.
The receiver (buyer) must have reversed the Input Tax Credit pertaining to the discount he is now receiving.
Using the same figures from the earlier example, if the discount of Rs.100 is being allowed after the sale has been effected, there must be an agreement showing that the discount is not an after thought but an already agreed upon issue. Also, the discount must be mapped to the relevant invoice(s) and the buyer must reverse the ITC with respect to this Rs.100, in case he has claimed ITC on the whole amount of Rs.1,000.
If the conditions are satisfied, the seller can raise a Credit Note for the amount of discount along with the GST thereon, and the buyer will raise a corresponding Debit Note. This way, the supplier’s value of the supplies for the month will be reduced by Rs.100 for that month and consequentially he will not be paying GST on the discount.
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