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Taxation · Value of Supply

Discounts and Their Treatment under Section 15(3) of the CGST Act

Updated 4 October 2026 · Fact-checked

A discount is excluded from value of supply under Section 15(3) in two cases. A discount given before or at supply must be recorded in the invoice. A post-supply discount needs a prior agreement linked to specific invoices, and the recipient must reverse the ITC attributable to it.

Understand Discounts and Their Treatment (Section 15(3))

GST is charged on the transaction value, which is the price actually paid or payable. A discount reduces that price. Section 15(3) tells you when the reduction is accepted for GST and when it is ignored.

There are two kinds of discount. A discount at or before supply is the usual trade discount. It is already reflected when the invoice is made. A post-supply discount is given after the goods or services have gone out, for example a year-end volume rebate settled by a credit note.

For the first kind, the test is simple. The discount must be duly recorded in the invoice for that supply. If the invoice shows the list price and the discount, GST is charged on the net amount. If the discount is given informally and is not on the invoice, it does not reduce the value.

For the second kind, Section 15(3)(b) adds two conditions. Under clause (i), the discount must be established in terms of an agreement entered into at or before the time of supply, and it must be specifically linked to relevant invoices. Under clause (ii), the recipient must have reversed the input tax credit attributable to the discount, on the basis of the document issued by the supplier by way of a credit note.

The credit note under Section 34 is a separate, additional compliance step. Section 15(3)(b) itself does not require a credit note. It requires the agreement, the link to invoices, and the recipient's ITC reversal. The supplier needs the Section 34 credit note to reduce its own output tax, and the recipient reverses ITC on the basis of that document.

The ITC condition protects revenue. If the supplier pays less tax on the lower value, the recipient must also take less credit. Both sides stay in step. If any condition fails, the discount is not excluded and the original value stands.

Key rules to remember

Discount at or before supply
Value = Price before discount − Discount (only if the discount is recorded in the invoice)
If the discount is not on the invoice, the full price is the value. Charges that must be added under Section 15(2) are added separately.
Post-supply discount: conditions (all must be met)
(i) Agreement at or before supply AND (ii) linked to specific invoices AND (iii) recipient reverses ITC attributable to the discount
Conditions (i) and (ii) are in Section 15(3)(b)(i). Condition (iii) is in Section 15(3)(b)(ii). Fail any one and the discount stays in the value of supply.
GST effect of a post-supply discount
Reduction in tax = Discount × GST rate
The recipient reverses this ITC. The supplier reduces output tax through a credit note under Section 34, which is a separate compliance step with its own conditions.
Credit note time limit (Section 34)
Supplier may reduce tax for a credit note in the return for a month up to 30 November following the end of the financial year of the supply, or the date of furnishing the relevant annual return, whichever is earlier
This is separate from Section 15(3)(b). Check it when a question gives dates for the credit note.

How to solve Discounts and Their Treatment (Section 15(3)) questions

Use this order for any question on discounts and value of supply. It works whether the question asks for taxable value, GST payable, or ITC reversal.

  1. 1Read the facts and mark the timing of each discount: before supply, at supply, or after supply.
  2. 2For a discount at or before supply, check whether it is recorded in the invoice. If yes, deduct it. If no, do not deduct it.
  3. 3For a post-supply discount, test the three conditions one by one: prior agreement, link to specific invoices, and ITC reversal by the recipient.
  4. 4Check the credit note and its timing under Section 34 if the question gives dates. Treat this as a separate step from the Section 15(3)(b) conditions.
  5. 5Add the Section 15(2) items (such as packing or other charges billed separately) to the value after the discount, only if they are not already included.
  6. 6Compute GST on the final taxable value at the given rate. Show the tax saved by the supplier and the ITC reversed by the recipient where asked.
  7. 7Write a one-line conclusion: discount allowed or not allowed, with the reason.

Quickest way: Three-question check for discounts

When to use it: Use it for MCQs and for the first minute of a written answer, before you start any calculation.

  1. Ask: when was the discount given? Before or at supply means look for the invoice. After supply means look for the agreement.
  2. Ask: is it on the invoice (pre-supply) or is it agreed at or before supply and linked to invoices (post-supply)? If not, the discount is not excluded.
  3. Ask: for a post-supply discount, did the recipient reverse the ITC? If not, the supplier cannot reduce the value.
  4. In MCQs, any option that excludes a discount decided after supply with no prior agreement is wrong. Eliminate it first.
  5. In written answers, use the format: provision, facts, conclusion. State Section 15(3)(a) or (b), apply each condition to the facts, then give the amount of taxable value and GST.

Common mistakes in Discounts and Their Treatment (Section 15(3))

  • Deducting a discount that is not recorded on the invoice.

    Students treat every discount as a price reduction, as in accounting.

    Fix: For a discount at or before supply, deduct it only if the invoice records it. Look for the words 'shown in the invoice' in the question.

  • Allowing a post-supply discount without a prior agreement.

    Students assume a credit note alone is enough.

    Fix: A credit note is only the document. The discount must also be agreed at or before supply and linked to specific invoices.

  • Forgetting the ITC reversal condition.

    Students focus on the supplier's side and ignore the recipient.

    Fix: Always check whether the recipient has reversed the ITC attributable to the discount. Without it, the discount is not excluded from value.

  • Reversing ITC on the full invoice value instead of on the discount.

    Students mix up the discount with the invoice amount.

    Fix: The reversal is only the tax attributable to the discount: discount × GST rate.

  • Mixing up Section 15(3)(b) conditions with the Section 34 credit note rules.

    Students learn Section 15(3) and Section 34 separately and blend them.

    Fix: Treat the credit note as a separate compliance step. The Section 15(3)(b) conditions are the agreement, the link to invoices and the recipient's ITC reversal. When dates are given, also check that the supplier uses the credit note in the return up to 30 November following the financial year, or by the annual return date if earlier.

  • Deducting the discount and forgetting to add Section 15(2) charges.

    Students stop once the discount is deducted.

    Fix: After the discount, add packing, commission or other charges billed separately, then compute GST.

Worked examples

Example 1

A registered supplier sells goods with a list price of ₹1,00,000. The tax invoice shows a trade discount of 10% on the list price. Packing charges of ₹2,000 are billed separately in the same invoice. GST rate is 18%. Compute the value of supply and GST.

Show the solution
  1. The discount is given at the time of supply and is recorded in the invoice, so Section 15(3)(a) applies.
  2. Discount = 10% × ₹1,00,000 = ₹10,000.
  3. Price after discount = ₹1,00,000 − ₹10,000 = ₹90,000.
  4. Packing charges billed separately are added under Section 15(2): ₹90,000 + ₹2,000 = ₹92,000.
  5. GST = 18% × ₹92,000 = ₹16,560.

Answer: Value of supply is ₹92,000 and GST is ₹16,560.

Example 2

On 1 August, a supplier invoices goods worth ₹5,00,000 plus 18% GST. Under an agreement signed before the supply, a 2% volume discount is payable if the buyer meets a purchase target. The discount is linked to specific invoices. The target is met and a credit note for the discount is issued within the time allowed under Section 34. Find the value and GST in two cases: (a) the buyer reverses the ITC attributable to the discount; (b) the buyer does not.

Show the solution
  1. The discount is given after supply, so Section 15(3)(b) applies. The agreement was made before supply and is linked to invoices, so the condition in clause (i) is met.
  2. Discount = 2% × ₹5,00,000 = ₹10,000.
  3. Tax attributable to the discount = 18% × ₹10,000 = ₹1,800.
  4. Case (a): the ITC reversal condition in clause (ii) is also met. Value = ₹5,00,000 − ₹10,000 = ₹4,90,000. GST = 18% × ₹4,90,000 = ₹88,200. The supplier's tax falls from ₹90,000 to ₹88,200, a reduction of ₹1,800. The buyer reverses ₹1,800 of ITC.
  5. Case (b): the ITC reversal condition fails, so the discount is not excluded and remains in the value of supply. Value stays ₹5,00,000 and GST stays ₹90,000. Even though the credit note was issued in time, the supplier cannot reduce its output tax by ₹1,800, because the credit note alone does not satisfy Section 15(3)(b). The reversal is a condition on the recipient's side, so the supplier should confirm it before reducing tax.

Answer: Case (a): value ₹4,90,000, GST ₹88,200, buyer reverses ITC of ₹1,800. Case (b): value ₹5,00,000 and GST ₹90,000, with no reduction in the supplier's output tax of ₹1,800 despite the credit note.

Exam tips

  • In written answers, quote Section 15(3)(a) for pre-supply discounts and 15(3)(b) for post-supply discounts. Then apply each condition to the facts. Step marks come from the conditions.
  • Underline words like 'shown in the invoice', 'agreed before supply' and 'reversed ITC' in the question. They decide the answer.
  • Expect MCQs where one condition is missing, such as no prior agreement or no ITC reversal. The answer is almost always that the discount is not excluded.
  • Show the ITC reversal as a separate figure (discount × rate). Examiners reward it even when the main answer is right.
  • When the question includes packing or other charges, compute in this order: discount, then Section 15(2) additions, then GST.

Practice questions from Value of Supply

Discounts and Their Treatment (Section 15(3)) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Discounts and Their Treatment (Section 15(3)): frequently asked questions

What is the difference between a trade discount and a post-supply discount under GST?

A trade discount is given before or at the time of supply and must be recorded in the invoice. A post-supply discount is given after the supply, usually through a credit note. It is excluded from value only if it was agreed at or before the supply, linked to specific invoices, and the recipient reverses the related ITC.

Is a discount given after supply always excluded from value of supply?

No. It is excluded only if the conditions in Section 15(3)(b) are met. These are a prior agreement, a link to specific invoices, and ITC reversal by the recipient. If any one is missing, the discount stays in the value.

Who reverses the ITC on a post-supply discount?

The recipient reverses the input tax credit attributable to the discount, on the basis of the document issued by the supplier. The amount is the discount multiplied by the GST rate. This keeps the supplier's reduced output tax and the recipient's credit consistent.

Does a discount that is not shown on the invoice reduce the taxable value?

If the discount is given at or before supply, it reduces the value only when it is duly recorded in the invoice. A discount decided later falls under the post-supply rules and needs a prior agreement and ITC reversal.