Jul 242018
 

Types of discounts and its role in GST

Meaning of discount under GST:

Discounts means a reduction made from the gross amount or value of something: such as, a reduction made from a regular or list price offering customers a ten percent discount or buy tickets at a discount. A proportionate deduction from a debt account usually made for cash or prompt payment or a deduction made for interest in advancing money upon or purchasing a bill or note not due

There are many types of Discount: like cash discount, quality discount, quantity discount and performance discount.

If one registered dealer purchase or sale goods from another register dealer and he is giving discount on value of goods and / or services supplied then there may be different implications of such discounts based on manner of calculating it.

Role of discount while calculating GST:

Value of taxable supply – Section 15 of CGST Act: Sub – section (3) The value of the supply shall not include any discount which is given––

  1. before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
  2. after the supply has been effected, if—
    1. such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
    2. input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply

Case study:

One registered garments dealers selling Shirt to their consumer for Rs.1000 and the consumer is asking for discount on that shirt. The dealer said 30% on price. The price of shirt is Rs.1000 and now he is giving discount of Rs. 300. Now the price of the shirt is going to be 700 only and the dealer will make a invoice of Rs.700 only. the discount is adjusted at the time preparing discount. And the dealer will have to pay GST and purchasing dealer is eligible to take input tax credit only on invoice amount of Rs. 700.

Comparative analysis of different types of discount:

Types of discount Cash Discount Quality Discount Quantity discount Performance Discount
Meaning This discount is given for purchases made in cash. Discount given for inferior quality of material supplied. Discount given for purchases made in large numbers. Discount given for achieving sales targets.
Abbreviation CD Rate Discount
Manner of adjustment in invoice Discount is shown after total value of material sold is calculated but before calculating GST. Not shown is invoice. Item rates itself is adjusted with value of discount. Shown in invoice with each items of invoice after rate per unit. Rate per unit is adjusted with this discount. Not shown in invoice as it is calculated after sale is performed.
When calculated At the time of receiving cash. Before preparing tax invoice. At the time preparing tax invoice. At the end of each performance period.
Implication on GST GST will be paid. In case Same is declared at the time of invoice preparation GST needs to be adjusted by way of debit / credit notes. GST need not to be paid. GST need not to be paid. GST will be paid. In case Same is declared at the time of invoice preparation GST needs to be adjusted by way of debit / credit notes.