Cash discount

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

01 March 2013 I’m selling some items on which I must allow Cash Discount (CD) to few buyers. Now I want to ask whether the amount of VAT to be charged under MVAT should either before deducting Cash Discount or after deducting Cash Discount.

Cost 100.00
- CD @5% 5.00
------
95.00
+ Add : VAT @5% 4.75
------
99.75

Or

Cost 100.00
+ Add : VAT @5% 5.00
------
105.00
- CD @5% 5.25
------
99.75

Which is the correct way?

If possible also explain the logic and justify the selection.

Does it will make any difference if Trade Discount is also there?

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)

01 March 2013 Cash discount means discount allowing at the time of payment of cash for the prompt or timely payment of cash. So no question of Cash discount at the time of preparation of invoice. If you allowing discount in Invoice it is called trade discount for trade discount you shall collect VAT tax after deduction of Trade Discount.
In case if you collecting cash at the same time of issuing invoice i.e issuing cash bill then you have to deduct cash discount after charging VAT tax i.e cash discount always deduct after VAT tax.

The logic is cash discount means allowing discount for the prompt payment of cash in time so effect of sale value and VAT shall be compute on sale value but trade discount effects sale value because of trade discount means allowing discount to the quantum of quantity of goods purchase thus decrease the rate/price of value of goods.

OM SAI SRI SAI JAI JAI SAI

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