GST – Discount Schemes and Credit Notes changes by Budget 2026

Discount provisions

Section 15(3) of CGST Act allows deduction of eligible discounts from the value of supply, subject to condition that the discount was known and agreed upon before or at the time of supply and linked to the relevant tax invoice.
 

The above condition was a significant compliance hurdle in real-world commercial practices, as most of the time, the discounts are passed on without any pre-agreed arrangements, making such discounts ineligible for deduction from value of supply.
 

Pursuant to the representations by various industries, the Government proposed the following amendments to the discount provisions in the 56th GST Council meeting, - 
 

• Omit the requirement of linkage of discounts with the agreements and invoices 
   
• Cross reference of Section 15(3)(b) in Section 34 and vice-versa 
   

The intent behind this proposal was to omit this pre-agreement requirement and instead allow post-sale discounts to be recognised through issuance of GST credit notes under Section 34 of the CGST Act, subject to the only condition that corresponding Input Tax Credit (ITC) is reversed by the recipient. 
 

The above recommendation has been given effect by substitution of Section 15(3)(b). The amended Section 15(3) reads as under:
 

(b) after the supply has been effected, if for such discount, a credit note has been issued by the supplier and input tax credit as is attributable to such discount has been reversed by the recipient of the supply, in accordance with the provisions of section 34.
 

LKS Comments: 
 

• The above amendment will be effective by way of a Notification in Official Gazette. 
   
• It seems that the taxpayers are no longer required to have a discount policy in place to qualify for GST reduction. The discounts can be passed on without any pre-agreed terms as well, the only condition being the corresponding ITC is reversed by recipient. 
   
• The term ‘discount’ itself has not been deleted from Section 15(3)(b). Thus, clarity is awaited as to whether the concept of what constitutes a discount continues to be relevant to the valuation rules, particularly amidst the settled law on meaning of the term ‘discounts’ in pre-GST era which necessitated the requirement of having pre-agreed arrangements.
   
• Whether any reduction in value by supplier to the recipient on account of reduction in price would be considered as discounts? Can unannounced schemes such as surprise discounts, stock liquidation discounts be covered under the amended provision? 
   
• What constitutes ‘third-party consideration’ continues to be a matter of debate post this amendment. 
   

Credit Notes:
 

Section 34 of the CGST Act has been amended so as to include the reference of discount referred to under Section 15(3)(b) for issuing credit notes for post-supply discounts.
 

LKS Comments:
 

• The above change was also recommended in 56th GST Council Meeting. The above amendment will be effective by way of a Notification in Official Gazette. 
   
• The cross referencing of Section 15(3)(b) in Section 34 and vice versa seems to be a clarificatory amendment specifically allowing issuance of GST credit notes in case of post supply discount. The same is also subject to the condition of reversal of ITC by recipient.