Discounts have always been a tricky zone under GST — particularly post-sale discounts. The interplay of Section 15 (valuation), Section 34 (credit notes), and the rules on ITC reversal has created a web which cannot be untangled. Recent legislative developments now aim to simplify this.
1. The Section 34 Amendment – Effective from October 1, 2025
Some provisions of the Finance Act 2025 have been made effective from 1st October 2025 and one of them relates to credit notes. The newly inserted proviso makes it clear that a supplier can reduce output tax liability via a credit note only if the corresponding ITC, if availed, has been reversed by the recipient.
2. Withdrawal of the CA Certificate Requirement - Effective from October 1, 2025
Last year’s Circular 212/6/2024-GST had created significant compliance noise. It required suppliers to obtain a CA or CMA certificate (or a declaration for small cases) from recipients confirming ITC reversal before availing tax reduction. This was never practical in large B2B networks with hundreds of customers, each needing certification.
The CBIC has now withdrawn this circular, acknowledging its impracticality. This is a welcome move that will lighten compliance without compromising audit trails — especially as the law now directly makes ITC reversal a statutory pre-condition for reduction under Section 34.
3. New CBIC Circular on Post-Sale Discounts – Effective September 12, 2025
CBIC has also issued instructions on how to deal with different types of post-sale discounts. The core principle is the distinction between:
Credit notes under Section 34: used to reduce the taxable value or tax. Here, the supplier can adjust output tax only if the recipient reverses ITC.
Financial or commercial credit notes: used for purely commercial settlements (without affecting taxable value). These are outside GST, and therefore no ITC reversal is needed where there is no tax/value reduction (purely financial/commercial credit notes).
In certain cases, the manufacturer has an agreement with an end customer to supply goods at a discounted price. Here, the manufacturer may issue commercial or financial credit notes to the dealer, enabling such dealer to provide the goods at the agreed discounted rate to the end consumer. If such a post-sale discount is given by the manufacturer to the dealer for supplying goods to the end customer at a discounted rate, it should be included in the overall consideration as it is an inducement towards the supply of goods by the dealer to the end customer.
In certain cases, a dealer undertakes specific sales promotional activities, such as advertising campaigns, co-branding, customisation services, special sales drives, exhibition arrangements, or customer support services, etc., and such services are explicitly stated in the agreement with a clearly defined consideration payable for such a supply. In such cases, the dealer provides a distinct service to the supplier, and any “credit notes” issued for such services would be chargeable to GST.
The GST Council has also proposed an overhaul of Section 15 targeting easing post-sale discount compliances and conditions. Since this requires an amendment to the CGST Act, which can only be done via the Budget, this change should come into effect sometime next year.
The proposal currently is to omit the requirement of establishing the discount in terms of an agreement entered before or at the time of such supply and specifically linking the same with relevant invoices. This structure worked poorly in industries where discounts were determined later — for example, year-end rebates, turnover discounts, or sales incentives.
The combined effect of these reforms is clear: The government wants to tighten control over revenue leakage (ensuring ITC reversals actually happen), while simplifying compliance (by removing pre-contract and certification hurdles).
These changes will impact how discount structures are designed and accounted for. Businesses should now revisit discount policies — especially year-end rebate or volume-based schemes. Businesses should also classify credit notes correctly — use Section 34 notes for genuine value reduction (with ITC reversal), and use “financial” credit notes where no tax change is intended.
They also need to coordinate with customers to ensure buyers reverse ITC in a timely manner when credit notes are issued. Even if CA certificates are gone, businesses would be well advised to keep records of reversals and acknowledgements for audit.
(The writer, a Fellow Chartered Accountant (FCA), specialising in Goods, Services tax, Transfer Pricing and Income tax, is the co-author of the book ‘Comedium of Industrial Policy for MSMEs in Goa’ released by ICAI)
