GST revamp: Goods and services tax not applicable on these post-sale discounts; here is what experts say

The Central Board of Indirect Taxes and Customs (CBIC) clarified that post-sale discounts offered by manufacturers to dealers, aimed purely at competitive pricing and driving sales, will not attract Goods and Services Tax (GST).

In a circular, the board further explained that GST would, however, apply if such discounts are linked to specific promotional services carried out by dealers on behalf of the manufacturer, such as co-branding initiatives, advertising campaigns or customised sales drives.


The clarification follows multiple representations received by the CBIC on the treatment of secondary or post-sale discounts under GST, PTI reported.

According to the circular, dealers may sometimes engage in promotional efforts after receiving discounts, but these actions usually help them sell the goods they own and, in turn, increase their own earnings. In such situations, the board said, the discount functions only as a reduction in the sale price of goods rather than as consideration for a separate service.

"Therefore, it is clarified that post-sale discounts offered by manufacturers to dealers in such cases shall not be treated as consideration for a separate transaction of supply of services," the CBIC circular stated.
The tax will only apply, the board noted, if agreements explicitly state that dealers will perform promotional services like exhibitions, customised campaigns, advertising or customer support, with a defined payment for such activities.

Commenting on the circular, AMRG & Associates senior partner Rajat Mohan pointed out that while dealers often run small marketing campaigns or quick sales drives, such efforts are usually undertaken to boost their own sales volumes.

"The government has rightly clarified that these routine trade discounts cannot be treated as payment for any service provided by the dealer to the manufacturer, and therefore no additional GST liability arises in such cases," Mohan was quoted as saying by PTI.

EY tax partner Saurabh Agarwal said the clarification rightly differentiates between a straightforward trade discount and a service transaction. He added that the position confirms that where the manufacturer-dealer relationship is on a principal-to-principal basis, discounts meant purely for sales promotion or competitive pricing cannot be viewed as payment for services.

He also stressed that this move addresses a major source of confusion. "In light of these clarifications, businesses must revisit their contractual arrangements and tax positions. The government's clear demarcation between trade discounts and promotional services will significantly reduce interpretational disputes and provide greater certainty in compliance for the industry, paving the way for a more streamlined GST regime," Agarwal told PTI.

Grant Thornton Bharat partner Manoj Mishra noted that the CBIC’s guidance resolves a long-standing dispute. He highlighted that the assurance on input tax credit, which remains unaffected when financial or commercial credit notes are issued, eliminates a significant compliance risk for dealers.

"From a practical standpoint, this puts the onus on businesses to carefully document agreements, credit notes, and customer-level pricing arrangements.”

"Overall, the clarification is a pragmatic move that strengthens certainty, reduces litigation, and provides a workable framework for industry," Mishra said.