Clarification On Post-sales Discounts And Secondary Discounts

Circular No 251/08/2025-GST dated 12 September 2025

In pursuance of the recommendations of the 56th GST Council Meeting held at New Delhi on 03 September 2025, the Government vide Circular No 251/08/2025 – GST dated 12 September 2025 ('the Circular') has clarified various issues pertaining to the treatment of secondary or post-sales discount. The same has been summarized and explained below.

1. Availability of credit to the recipient on issuance of a financial credit note by the supplier.

The Government vide Circular No 92/11/2019 – GST dated 07 March 2019 had clarified that no reduction from the original tax liability would be provided to the supplier on issuance of financial credit notes to provide secondary discounts. However, the issue with respect to the reversal of ITC by the recipient on such financial credit notes still existed in the absence of any specific clarification by the Government.

Given this, the Government has now explicitly clarified that the recipient would not be required to reverse input tax credits attributed to the discount provided based on financial/ commercial credit notes issued by the supplier, as there is no reduction in the original transaction value of the taxable supply.

2. Treatment of post-sales discounts provided by a manufacturer to end customers through dealers

Scenario 1: Where there is no agreement between the manufacturer and the end customer

In this scenario, two independent transactions take place: i) Between the manufacturer and the dealer, ii) Between the dealer and the end consumer. Since the transaction undertaken in the entire supply chain is on a principal-toprincipal basis, any discounts offered by the manufacturer to the dealer are intended solely to support competitive pricing and boost sales, and are not linked to any specific service provided by the dealer to the manufacturer. Therefore, such discounts are not considered part of the transaction's consideration and are not treated as inducements for supply.

Scenario 2: There is an agreement between the manufacturer and the end customerto supply goods at discounted prices.

In this scenario, the manufacturer issues credit notes to the dealer to ensure the agreed discount is passed on to the end customer. In this case, the discount is directly linked to the supply of goods to the end customer and acts as an inducement to the dealer to sell at the reduced price. Therefore, the discount forms part of the overall consideration for the transaction and must be included in the taxable value of supplies.

3. Treatment of post-sales discounts as a consideration in lieu of promotional activities.

Scenario 1: Promotional activities undertaken by the dealer on their own account

Often, dealers engage in promotional activities to boost sales and increase their revenue. To encourage these dealers to sell their product, manufacturers may provide post-sales discounts to the dealers by way of a reduction in the price of goods. In this context, the Circular has 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 since it merely reduces the sale price of the goods and is not linked to any independent service rendered to the manufacturer.

Scenario 2: Promotional activities forming part of the agreement entered with the manufacturer

However, the said Circular also clarifies that GST would be leviable in cases where a dealer undertakes specific sales promotional activities, such as advertising campaigns, co-branding, customization services, special sales drives, exhibition arrangements, or customer support services, etc. The said services are explicitly stated in the agreement with a clearly defined consideration payable for such a supply

Earlier, the Government, through Circular No. 105/24/2019 – GST dated 28 June 2019 (the "June Circular"), which was later withdrawn, had provided clarifications regarding the treatment of post-sale discounts and the circumstances under which such discounts could be considered as consideration for supply of services. The June Circular specifically discussed two scenarios:

1. Discounts provided for undertaking promotional activities, and
2. Discounts granted to dealers to enable them to offer special reduced prices to customers with the objective of increasing sales volume.

The June Circular clarified that any discount extended in exchange for promotional efforts or special customer pricing constituted additional consideration for the supply of goods or services by dealers and therefore should be subject to GST. However, this approach overlooked practical business realities—particularly cases where manufacturers genuinely offer discounts or incentives to dealers on a principal-to-principal basis to boost sales. The present clarification partly overcomes such assumption and in general has held such activities to be in the nature of discount, unless, through the arrangement with the manufacturer, dealer and the end customer it can be established that the subsequent reduction of value, is not a discount but a separate adjustment for an activity independent of the transaction of sale between the manufacturer and the dealer.

The intent behind the issuance of this Circular was to extend the benefit of value and GST adjustment for post-sale discounts in genuine cases, particularly where such discounts are provided by manufacturers to dealers on a principalto-principal basis in order to drive higher sales. A gap, however, exists where the clarification places heavy reliance on contractual terms existing between the manufacturer–dealer or manufacturer and end customer to determine the categorization of reductions. This appears to contradict the proposed amendment to section 15 of the CGST Act, which aims to eliminate the condition on pre-existing contracts/agreements for extending value adjustment for discounts. In practice, as has been seen, such activities are rarely formalized within contractual terms between the manufacturer and dealer. This raises pertinent questions—does the absence of a contract or such clauses in agreements limit the tax authorities' scope for scrutiny? Conversely, if such clauses do exist, would all related discounts automatically be treated as consideration, even if no actual promotional activities are undertaken? Further, for manufacturers induced end customer discount, the clarification is very vague. It does not comment on the specifics of the arrangement between the manufacturer and such an end customer and why such a reduction cannot be considered a discount, and instead suggests that such discounts should be passed on through a financial credit note and should be included in the overall consideration.

Further, as is known, the manufacturer gives all post-sale discounts only where the dealer fulfills a certain set of pre-conditions, which could either be quantum-linked [e.g., volume of sales achieved] or incentive-linked [e.g., activities undertaken to increase visibility of the goods]. The end goal for all discounts, by whatever name they are called, is the promotion of goods/services and achieving the goal of higher sales. The clarification, while commenting on the GST applicability of such transactions, states that such activities undertaken by the dealer are taxable only where there is a separate consideration identified for these services in an agreement between the manufacturer and the dealer. Here again, it is relevant to note that all discounts/incentives have defined monetary value, which is directly linked to the actions taken by the dealer; thus, even though the agreement may specify an exact value, there is always a mechanism in place to quantify the value benefit derived by the dealer for each activity undertaken by them. Would this in itself create an argument to tax these activities, which a dealer also undertakes for himself or would the larger principle prevail, that the advertisement/sale campaigns are actually towards boosting the product sales of both the manufacturer and the dealer and that they both equally have a vested interest in the goods and cannot be considered as a separate supply between the manufacturers to the dealers. Even under the erstwhile regime, judicial precedents have consistently held that such incentives or discounts offered by manufacturers to dealers, when transacted on a principal-toprincipal basis, do not amount to taxable consideration under business auxiliary services. Notable references in this context include decisions of the Hon'ble Tribunal in M/s Vipul Motors Private Limited vs Principal Commissioner of CGST [Final Order No. 50957–50958/2025, dated 2 July 2025] and M/s Sai Service Station Limited vs. Commissioner of Service Tax, Mumbai [2013-TIOL-1436-CESTAT-MUM = 2014 (35) STR 625 (Tri.)].

The present clarification, although a significant improvement to the earlier clarifications, could still lead to some areas of discord when it comes to differentiating between an incentive that could be treated as a discount or additional consideration for services. Another issue which is open is the treatment of GST on incentives where TDS is deducted under Section 194R of the Income tax Act . Would they become liable because TDS has been deducted?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.