GST rate if discount applied on value and not item rate.

I provide wholesales discounts to my buyers based on how much sales we make to the buyer. Basically for buyers with x amount of purchase, the bill has 10% discount. The discount is applied at the end of the bill before the gst is applied.

The issue is if my product rate is around 1050,gst of 12 percent is applicable. But the discount is not on the item rate but the actual supply value. So for example if the buyer gets 100 pcs then the value is 100x1050 = 105000. 10 percent discount on value of 105000 and then 12 percent gst is applied.

The collected gst is paid to the GST department while filing the 3b and sales are recorded in gstr1.

Sometimes the buyer gets into an argument that the 10% discount means the price of item is 945 and 5% gst should be charged. But as I explained the discount is on supply value and not item.

Are both the methodologies acceptable? Since any kind of charges applied on an invoice like freight, handling, etc doesn't mean that the charges are equally divided on the pc rate and gst rates should change, so the same way of discount is applied on the supply and not the item, gst rates should not change? Can someone she'd some light with specific gst acts?

Hey Sandeep! Great question — this is a common point of confusion.

Here’s the key principle under GST about discounts:

GST & Discounts: What matters?

GST is charged on the transaction value, which is the price actually paid or payable for the supply of goods or services.
Discounts given after or at the time of supply, and specifically mentioned on the invoice, are allowed to reduce the transaction value, thereby reducing the GST payable.
The rate of GST depends on the product's classification (HSN code), not on how the discount is applied.

Your case:

Product price = Rs. 1050, GST rate = 12%
Buyer purchases 100 pcs → total = Rs. 105,000
Discount 10% on total value → Rs. 10,500 discount
Net taxable value = Rs. 94,500
GST = 12% on Rs. 94,500 = Rs. 11,340

This is perfectly valid.

Why your buyer's argument on 5% GST on Rs. 945/item is incorrect:

GST rate is linked to the nature/classification of goods or services, NOT the price after discount.
A discount does not change the GST rate applicable to the product.
So even if the unit rate after discount becomes Rs. 945, the GST rate remains 12%, not 5%.

Reference in GST Law:

Section 15 of CGST Act defines Transaction Value and allows for discounts given before or at the time of supply and duly recorded on invoice to reduce the taxable value.
GST Rate is based on classification of goods in GST Tariff Schedule (HSN), not on discounted price.

Other points:

Freight, handling charges, or any other charges that form part of the consideration are added to transaction value, not divided across the units to change rates.
Similarly, discounts apply on total value, not item price to change the GST rate.

Bottomline:

Your current method — discount on total value followed by GST at applicable rate — is correct and compliant.
Both your method and buyer's method cannot be right because GST rates are fixed per product/service classification.

Menu

Sandeep Mahajan

Aashok Kumar Sharma