The Central Board of Indirect Taxes and Customs (CBIC) has issued a clarification regarding the applicability of Goods and Services Tax (GST) on post-sale discounts offered by manufacturers to dealers. The circular, No. 251/08/2025-GST, dated September 12, 2025, addresses concerns and ambiguities surrounding the tax treatment of secondary or post-sale discounts under GST. This clarification aims to ensure uniform implementation of GST rules across the country and minimize potential legal disputes.

Key Points of the CBIC Clarification

• No GST on Routine Post-Sale Discounts: The CBIC has clarified that post-sale discounts given by manufacturers to dealers, intended solely for competitive pricing and promoting sales, will not be subject to GST. These discounts are considered a reduction in the sale price and are not linked to any independent service rendered to the manufacturer.
• GST Applicable on Promotional Activities: GST would be applicable on discounts if the manufacturer and the dealer have a specific agreement where the dealer undertakes promotional activities such as co-branding, advertising campaigns, or sales drives on behalf of the manufacturer. In such cases, the GST would be levied on the service element, provided it is explicitly stated in the agreement with a clearly defined consideration.
• ITC Reversal Not Required: The CBIC has clarified that buyers or recipients of supply are not required to reverse the Input Tax Credit (ITC) attributed to the discount provided via financial or commercial credit notes issued by the supplier. This is because there is no reduction in the original transaction value of the supply, and the supplier's original tax liability remains unchanged.
• Discounts Not Consideration for Dealer's Supply: In a principal-to-principal transaction, where the dealer owns the goods, a post-sale discount from the manufacturer is not considered a payment for the dealer's supply to the end consumer. The discount reduces the purchase cost and is not an inducement for the dealer to supply the goods.
• Exception for Discounts to End Customers: If a manufacturer has an agreement with an end customer to supply goods at a discounted price and issues credit notes to the dealer to facilitate this, the discount will be treated as consideration or inducement.

Impact and Analysis

The CBIC's clarification provides much-needed clarity on the GST treatment of various discount transactions between manufacturers and dealers. By distinguishing between genuine trade discounts and payments for promotional services, the circular reduces compliance uncertainties and potential disputes.

Experts note that the clarification is a welcome step, as it aligns tax treatment with standard commercial practices. The clear demarcation between trade discounts and promotional services reduces interpretational disputes and provides greater certainty in compliance for the industry.

The clarification also addresses the treatment of ITC in cases of post-sale discounts. The CBIC has made it clear that recipients of discounts are not required to reverse ITC, as long as the supplier does not reduce their original tax liability. This secures the ITC entitlement for dealers and removes uncertainty.

In summary, the CBIC's recent circular on post-sale discounts offers clarity and resolves long-standing ambiguities in GST implementation. By distinguishing between routine trade discounts and discounts linked to specific promotional services, the circular ensures that GST is applied fairly and consistently, reducing the potential for disputes and promoting ease of doing business.