GST on Annual Discount

Dear Experts,

We purchase some machine parts from one of our supplier and he agreed to give annual discount based on our Purchase at end of every financial year.

For the year 2019-20 we purchased a machine spares worth Rs.45,25,881/- and as per his slab he agrees to give Credit Note @ 4.5% on his sale value.

But he is giving Credit Note only for Rs.2,03,664=00 (4.5% of 45,25,881) and not charging GST.

My Query:

1) Is he suppose to charge GST on Discount Amount ?

2) Is it require to Reverse our GST Input Credit to the extent of Discount amount?

Kindly Clarify, Thanks in advance.

Regards,

Manjunath S

 

Replies (4)
Quick Summary
This discussion clarifies the Goods and Services Tax (GST) implications for annual discounts provided by suppliers based on purchase volume. Experts confirm that if a supplier issues a commercial credit note for an annual discount without charging GST, the recipient is generally not required to reverse their input tax credit (ITC). GST is typically not applicable to such discounts unless the agreement was made before the supply and the credit note can be directly linked to the original invoice, as per Section 15 of the CGST Act.

If he is issuing commercial credit note then no GST will be charged in credit note. since no gst is charged in credit note, he will not adjust the tax liability and eventually you as a recipient is not required to reverse any ITC
Both are hold good and to do so
1. No attracts on Turnover Discount (Kindly refer Circular 92/11/2019 GST , )
2. No not required , When Supplier has not reverse his output tax liability then Receptient is not required to reduce his ITC

** No GST attracts. 

Note : As per Section 15 of CGST Act GST is attracts on discount only when :

1. agreement is done before Supply

2. such credit not can link to invoice. 

Hence if above both the condition is satisfied then only GST is applicable on Discount.

 

 

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