The Central Board of Indirect Taxes and Customs (CBIC) has issued a clarification regarding the treatment of post-sale discounts under the Goods and Services Tax (GST) regime, resolving previous uncertainties and potential legal disputes. The circular, issued on September 12, 2025, addresses the concerns raised by various industries seeking clarity on the impact of these discounts on tax liability and Input Tax Credit (ITC).

A key aspect of the clarification is that buyers or recipients of post-sale discounts in the form of financial or commercial credit notes are not required to reverse the ITC already claimed. This applies when the credit notes are issued without tax adjustments, meaning the original taxable value and GST liability remain unchanged. The CBIC emphasized that these types of credit notes do not reduce the original transaction value of the supply; therefore, there is no corresponding reduction in the supplier's tax liability. This measure aims to provide certainty to dealers and protect their ITC entitlement, provided the supplier does not modify their tax liability.

The CBIC circular also clarifies that post-sale discounts offered by manufacturers to dealers for competitive pricing and sales promotion will not be treated as consideration for a separate service. In a typical principal-to-principal transaction, the dealer owns the goods, and the discount reduces the purchase cost without being an inducement for supply. However, an exception exists when a manufacturer has an agreement with an end customer to supply goods at a concessional rate and issues credit notes to the dealer to pass on this benefit. In such cases, the discount will be considered as consideration or inducement.

Furthermore, the CBIC clarified that post-sale discounts to dealers should not be considered payments for promotional services. Promotional activities undertaken by dealers usually aim to boost their own sales, and the discounts simply reduce the sale price of the goods. However, if dealers are explicitly contracted to perform specific services such as advertising, co-branding, or special sales campaigns with defined consideration, GST will be applicable on these services separately.

The CBIC has instructed tax authorities to widely publicize these clarifications to ensure consistent application of GST law throughout the country. This move is expected to provide much-needed clarity to businesses on ITC entitlement and tax liability, reducing uncertainty and disputes related to post-sale discounts. Abhishek Jain, Partner & National Head, Indirect Tax at KPMG in India, lauded the circular, noting that it brings welcome clarity to the GST treatment of various discount transactions between manufacturers and distributors or dealers.