Clarification on Treatment of Secondary or Post-Sale Discounts under GST Circular No. 251/08/2025 – CBIC, 12th September 2025
Summary: The Central Board of Indirect Taxes and Customs (CBIC) has issued a circular to clarify the GST treatment of post-sale or secondary discounts, following the 56th GST Council meeting. The circular addresses three key issues. First, it clarifies that a recipient does not need to reverse **Input Tax Credit (ITC) on discounted payments made using commercial or financial credit notes, as the supplier’s original GST liability remains unchanged. Second, the circular explains that a post-sale discount from a manufacturer to a dealer is not typically considered payment for the dealer’s supply to the end customer. However, if there is a direct agreement between the manufacturer and the end customer, the discount funneled through the dealer would be treated as consideration. Finally, the circular states that promotional activities performed by a dealer on their own initiative are not a separate supply of service to the manufacturer. However, if these activities are done under a specific, agreed-upon arrangement for a separate consideration, GST would be applicable on that service. These clarifications are intended to reduce confusion and litigation related to post-sale discounts.
Background
- Pursuant to the decision in 56thGST Council meeting, CBIC has issued Circular No. 251/08/2025 – GST dated 12th September 2025
- The circular addresses the following three issues
- Whether ITC is required to be reversed when recipient makes discounted payments due to Financial/ Commercial Credit notes
- Whether post sale discount by a manufacturer to its dealer can be considered as a consideration for supply of goods by the dealer to end customer
- Whether post sale discount can be treated as a consideration for promotional activities carried out by a dealer
Input Tax Credit on Discounted Payments
- Whether full ITC is available when recipient makes discounted payments due to financial/ commercial credit notes?
- Supplier issuing financial/ commercial credit notes cannot reduce original tax liability
- Accordingly, GST charged remains unchanged
- Therefore, the recipient need not reverse ITC on such discounts or making discounted payments due to financial/ commercial credit notes
Post-Sale Discount as Consideration
- Is post-sale discount treated as consideration for dealer’s supply to end customer?
- Normally, manufacturer → dealer and dealer → customer are independent sale transactions
- Discounts are given for competitive pricing, not inducement for supply by dealer to its end customers
- Accordingly, such discounts would not part of consideration
- However, if manufacturer has agreement with end customer, discount given through dealer is inducement and, therefore, would become part of consideration
Discount vs Promotional Services
- Can post-sale discount be treated as consideration for dealer’s promotional activities?
- Normally, post sale discounts received from manufacturer reduces purchase price of dealer’s own goods
- A dealer may undertake promotional activities to boost sales, which ultimate may result in post sale discounts
- Such promotional activities carried out by a dealer on his own not to be treated as consideration for separate transaction for supply of service
- However, if dealer undertakes promotional activities with clear agreement and for a consideration, GST would be applicable
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