Discount and Outward freight on Sale GST RCM

In a sales invoice a discount @ 5% of basic value is given which is 4.76% of total billing value , then actual freight charges is deducted from the basic value after discount and on such basic value GST is applied. The goods is moved on "to pay" basis through transport, the receipient pays the freight and collects the goods. Now please inform whether such discount and freight charges which is deducted from the basic sales value is correct or not? and who is liable for RCM of such freight charges. For Exemple Basic Value 1000 Disc. -50 - Freight -60 = Basic 890 + GST @ 18% 160.20 = 1050.20.


Attached File : 1814240 20250503183611 discount woking.xls downloaded: 124 times
Replies (1)

Dear Jatin-sir,

Your question involves two parts:

  1. Whether deducting discount and freight charges from the basic value before applying GST is correct, and

  2. Who is liable for RCM (Reverse Charge Mechanism) on freight charges when goods are sent on a "to-pay" basis.


✅ Part 1: Deducting Discount and Freight from Basic Value Before GST

Discount:

  • Under Section 15 of the CGST Act, discounts that are:

    • Given before or at the time of supply, and

    • Recorded in the invoice,
      are allowed as deduction from the value of supply.

  • So, the 5% discount shown in the invoice is correctly deducted before calculating GST.

Freight Charges (Deducted from Seller’s Invoice):

  • If the freight is actually incurred by the recipient (as in "to pay" basis) and the seller does not charge it to the buyer (i.e., it's not included in the seller’s invoice), then:

    • It should not be included in the value of supply by the seller.

    • If the seller deducts this freight from the basic value (as in your example), it seems like an internal adjustment, which is not correct unless the seller is actually bearing the cost and passing a benefit to the buyer.

✅ So, discount deduction is correct.
❌ Freight deduction from basic value is not correct unless the seller is paying the freight and offering it as a reduction — which is not the case here as the buyer pays it directly to the transporter.


✅ Part 2: Who is Liable for RCM on Freight (GTA) Charges

Reverse Charge Mechanism (RCM) applies to freight under GTA (Goods Transport Agency) under the following:

  • Recipient of goods is liable under RCM if:

    • Goods are transported by a Goods Transport Agency (GTA), and

    • Recipient belongs to one of the specified categories (such as a registered person).

In your example:

  • The goods are sent on a "to-pay" basis.

  • The recipient (buyer) pays the freight directly to the transporter.

  • If the recipient is a registered person, they are liable under RCM to pay GST @ 5% (without ITC) or 12% (with ITC) on the freight amount.

✅ Recipient is liable for RCM, not the supplier, since they are the one paying the freight directly to the transporter.

Regards,

S Ram

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