In short
Applies to: Manufacturers, distributors and traders who give year-end, turnover or volume discounts
- A post-sale discount reduces taxable value only through a GST credit note.
- The buyer must reverse the credit that relates to the discount.
- Prior agreement and invoice-by-invoice linking are no longer required for discounts given from 1 November 2026.
Many manufacturers pay distributors a discount after the season: 2% if a yearly target is met, an extra 1% for early payment, a scheme announced in the middle of the year. Until now, GST law allowed such a discount to reduce the tax only if it had been agreed before or at the time of the sale and could be linked to specific invoices. Anything else was treated as a reduction in price with no change in GST.
What changed on 1 November 2026
The Finance Act, 2026 replaced section 15(3)(b) of the CGST Act and amended section 34(1). Notification 03/2026-Central Tax brought both into force from 1 November 2026. A discount given after the supply now reduces the taxable value if two things happen:
- The supplier issues a GST credit note for the discount.
- The buyer reverses the that relates to that discount.
A worked example
A Coimbatore pump maker sold ₹50,00,000 of pumps to a distributor during the year, at 18% GST (₹9,00,000). In November it announces a 2% turnover discount. The figures are fictional.
| Item | Amount |
|---|---|
| Discount: 2% of ₹50,00,000 | ₹1,00,000 |
| GST on the discount at 18% | ₹18,000 |
| Credit note total | ₹1,18,000 |
| Effect on the pump maker | Output GST falls by ₹18,000 |
| Effect on the distributor | Input tax credit reversed: ₹18,000 |
The pump maker shows the credit note in ; it then appears in the distributor’s . When the distributor accepts it, the ₹18,000 of credit is reversed and the pump maker’s liability goes down. If the distributor rejects it, the pump maker’s reduction does not go through.
What to keep on file
- The scheme letter or circular announcing the discount, with its date.
- The working: which sales, which period, what percentage.
- The credit note number and date, and the GSTR-1 period in which it was reported.
- The buyer’s acceptance in the Invoice Management System.
Watch the deadline
A credit note must be declared in GSTR-1 no later than 30 November after the end of the financial year in which the original supply was made, or the date of the annual return, if earlier. Discounts on sales made in 2025-26 must therefore be credited by 30 November 2026.
Questions people ask
Can we still use a “financial credit note” without GST? Yes, if you choose not to reduce the GST. The buyer then keeps its full credit and you pay GST on the original value.
Does this apply to discounts given before 1 November 2026? The new rule applies from its date of coming into force. For discounts given earlier, the old conditions apply.
Your next practical step
Before your next scheme payout, agree with your main buyers that they will accept the credit notes in the Invoice Management System within the month. Without that step the tax saving does not reach you.
Sources
- GST notifications: CBIC tax information portal
- GST post-supply discount and refund amendments effective 1 November 2026: TaxGuru
This article is for general information only and does not constitute professional advice. Please consult a qualified professional before acting on it.
If you want this done for your business: Taxation & Regulatory Compliance →
Tell us your situation. We reply within one working day, in English or தமிழ்.
Opens a short definition
