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Goods and Services Tax (GST) and Corporate Tax Planning · Value of Supply

Discount under Section 15(3) of the CGST Act

Updated 11 October 2026 · Fact-checked

Under section 15(3), a discount is excluded from the value of supply in two cases. First, it is given before or at the time of supply and is duly recorded in the invoice. Second, it is given after supply under an agreement made at or before supply, linked to specific invoices, with the recipient reversing the related ITC.

Understand Discounts and Their Treatment

Value of supply starts with the transaction value: the price actually paid or payable, where the parties are not related and price is the sole consideration. A discount reduces that price. The question is whether GST is charged on the price before the discount or after it. Section 15(3) answers this.

There are two kinds of discount. A discount given before or at the time of supply is the familiar trade discount. It is excluded from value only if it is duly recorded in the invoice issued for that supply. If the invoice does not show it, you cannot exclude it.

A post-supply discount is given after the supply has been made, such as a volume or year-end discount. It is excluded only if both conditions in section 15(3)(b) are met. (i) It is established in terms of an agreement entered into at or before the time of supply and specifically linked to relevant invoices. (ii) The input tax credit attributable to the discount, on the basis of the document issued by the supplier, has been reversed by the recipient.

Why the ITC condition? The supplier pays less tax on the lower value. If the recipient kept the full credit from the original invoice, the government would lose revenue. So the recipient must reverse the credit that relates to the discount.

The supplier normally passes the post-supply discount through a credit note under section 34. The credit note must be issued for supplies of a financial year and declared in the return for the month of issue, not later than 30 November following the end of that financial year or the date of the annual return, whichever is earlier. The tax liability is then adjusted. No reduction in output tax is allowed if the incidence of tax and interest has been passed on to another person.

Key rules to remember

Value after discount excluded
Value of supply = Price before discount − eligible discount
Only a discount meeting section 15(3) is deducted. Otherwise tax applies on the full price.
Discount at or before supply
Excluded if: given before or at the time of supply AND duly recorded in the invoice
Section 15(3)(a). Both parts must be satisfied.
Post-supply discount
Excluded if: (i) agreement at or before supply, specifically linked to relevant invoices AND (ii) recipient has reversed attributable ITC
Section 15(3)(b). Both sub-conditions are needed.
ITC to reverse
ITC reversed = GST on the discount amount (at the rate of the original supply)
Based on the supplier's document, usually a credit note.
Credit note time limit
Declare in the return for the month of issue, not later than 30 November following the financial year of supply or the annual return date, whichever is earlier
Section 34(2).

How to solve Discounts and Their Treatment questions

Use this order for any discount question. Decide first whether the discount is excluded from value, then compute tax.

  1. 1Note the list price and the tax rate, and whether the price is inclusive or exclusive of GST.
  2. 2Identify the timing: before or at the time of supply, or after supply.
  3. 3For a discount at or before supply, check whether it is recorded in the invoice. If yes, exclude it.
  4. 4For a post-supply discount, check the agreement: made at or before the supply and specifically linked to invoices.
  5. 5Check whether the recipient has reversed the ITC attributable to the discount. If both conditions hold, exclude the discount.
  6. 6If any condition fails, the discount is not excluded. Tax stays on the full value.
  7. 7Compute taxable value, GST, and the credit note or ITC reversal, then state the conclusion in one line citing section 15(3) and section 34.

Quickest way: Two-gate test

When to use it: Use for short case-based questions where you must decide quickly whether a discount reduces taxable value.

  1. Gate 1: before or at supply? Look for the invoice entry. Shown on invoice means excluded.
  2. Gate 2: after supply? Look for three things: prior agreement, link to invoices, ITC reversal by the recipient.
  3. Any missing item means the discount is not excluded.
  4. Write the figure: taxable value = price − discount only if a gate is passed.

Common mistakes in Discounts and Their Treatment

  • Excluding a discount at the time of supply that is not shown on the invoice.

    Students treat any trade discount as excluded.

    Fix: Check that it is duly recorded in the invoice. Without that, section 15(3)(a) is not met.

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

    A discount announced later is assumed to be a normal volume discount.

    Fix: The agreement must exist at or before the time of supply and be specifically linked to relevant invoices.

  • Ignoring the recipient's ITC reversal.

    Students focus on the supplier's side only.

    Fix: State that the recipient must reverse the ITC attributable to the discount. It is a condition, not a courtesy.

  • Treating the conditions as alternatives.

    Sub-clauses (i) and (ii) look like separate options.

    Fix: They are joined by 'and'. Both must be met for a post-supply discount.

  • Forgetting the credit note time limit.

    Students link discounts only to section 15.

    Fix: Mention section 34(2): declare the credit note by 30 November following the financial year or the annual return date, whichever is earlier.

Worked examples

Example 1

Sharma Traders sells goods to Verma Enterprises for ₹2,00,000 (before discount). The invoice shows a trade discount of ₹10,000, duly recorded. GST rate is 18%. Find the taxable value 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. Taxable value = ₹2,00,000 − ₹10,000 = ₹1,90,000.
  3. GST at 18% = ₹1,90,000 × 18 ÷ 100 = ₹34,200.

Answer: Taxable value is ₹1,90,000 and GST is ₹34,200.

Example 2

Nair Ltd. sold goods worth ₹5,00,000 to Iyer Ltd. on 10 May at 18% GST. An agreement made before the supply provides a 4% discount linked to the invoice if payment is made within 60 days. Iyer paid on time and Nair issued a credit note for ₹20,000. Iyer reversed the ITC on the credit note. Find the revised taxable value, the GST and the ITC to be reversed.

Show the solution
  1. The discount is post-supply. The agreement was at or before supply and is linked to the invoice.
  2. Iyer has reversed the ITC attributable to the discount, so section 15(3)(b) is met.
  3. Discount = ₹5,00,000 × 4 ÷ 100 = ₹20,000.
  4. Revised taxable value = ₹5,00,000 − ₹20,000 = ₹4,80,000.
  5. Original GST = ₹5,00,000 × 18 ÷ 100 = ₹90,000. Revised GST = ₹4,80,000 × 18 ÷ 100 = ₹86,400.
  6. Reduction in GST = ₹90,000 − ₹86,400 = ₹3,600, which is the ITC Iyer reverses (₹20,000 × 18%).
  7. Nair must declare the credit note in the return for the month of issue, within the section 34(2) time limit.

Answer: Revised taxable value is ₹4,80,000, GST is ₹86,400, and Iyer reverses ITC of ₹3,600.

Exam tips

  • Quote section 15(3)(a) and (b) by clause. Examiners reward the exact conditions.
  • Use a clear conclusion line: discount excluded or not excluded, and why.
  • Always link post-supply discounts to a credit note under section 34 and the ITC reversal.
  • In case facts, hunt for missing items: no invoice entry, no prior agreement, or no ITC reversal.

Practice questions from Value of Supply

Discounts and Their Treatment 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: frequently asked questions

What is the difference between trade discount and 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 supply and needs a prior agreement linked to invoices, plus ITC reversal by the recipient.

Is a discount always excluded from the value of supply?

No. It is excluded only if it meets section 15(3). If the conditions fail, GST is charged on the full price.

Why must the recipient reverse ITC for a post-supply discount?

The supplier's tax falls with the lower value. The recipient's credit must fall by the same tax, so section 15(3)(b)(ii) requires the reversal.

Does a credit note matter for a discount?

Yes. A post-supply discount is usually given through a credit note under section 34. Its details must be declared within the time limit in section 34(2) for the supplier to adjust the tax liability.