Hardik Lashkari

Before and during roll out of GST, focus of taxpayers was confined to some key areas such as transition, migration, registrations and invoicing provisions. Now that it has been more than a month since roll out of GST, businesses have incorporated all these provisions in their daily operations. So, the focus has now shifted to getting an insight of some specific areas which directly impact a particular industry or a particular business.

How discounts will be dealt with under GST?

Offering trade and cash discounts is an in-built promotional scheme of almost every entity. Companies generally offer trade discounts to increase the sales, while cash discounts are given to recover the payments speedily.

GST doesn’t differentiate between trade discount and cash discount. Rather, it segregates the discount allowed in –

a) Before or at the time of supply, and;

b) After the time of supply

Sale

How discounts will affect the value of supply?

♣ If discount has been allowed before or at the time of supply and it has been mentioned in the invoice separately, it will not be added in the value of supply.

For Example – A company offers 10% discount on sale of goods worth Rs. 100, and mentions the discount amount (i.e. Rs. 10) separately in the invoice, value of taxable supply will be Rs. 90 (100 – 10).

♣ If discount is allowed after the supply, but –

  • It can be linked directly to the relevant invoice of supply,
  • It has been allowed as per the terms already agreed before or at the time of supply, and
  • Input tax credit related to the amount of discount allowed has been reversed by the recipient of the supply.

For Example – A company has a policy of allowing cash discount of 10% if a customer pays a particular invoice within 30 days. Now if the company sells goods worth Rs. 100 to the customer, and he pays the invoice within 30 days to avail the discount, the discount amount will not be added in the value of taxable supply. The customer must reverse the input tax credit on Rs. 10 (amount of discount allowed).

For Example – Company doesn’t have any policy of offering discount to the customers at the time of payment. Company had supplied goods worth Rs. 100 to one of the customer who didn’t pay his debts. Now company has offered 10% discount to customer to clear all his debts. Since, discount wasn’t agreed before or at the time of supply, and it can’t be linked to a particular invoice, such discount will be added in the value of taxable supply.  

Free samples under GST

In Pharmaceutical industry, companies provide free sample medicines & drugs to doctors, medical practitioners, government and public. Also in FMCG industry, promotional schemes like Buy 1 Get 1 Free are prevalent.

Input tax credit not allowed on free samples

According to section 17(5) of CGST Act, input tax credit will not be available for goods given as gift or free samples. Thus, if the taxpayer avails the input tax credit on account of purchase of goods, and later disposes them off as free samples, input tax credit will be reversed.

Value of free supplies

If the goods are supplied free of cost, the value of goods will be the value of goods of like kind and quality. Similar goods mean goods supplied under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials, and reputation of the goods or services or both first mentioned, is the same as, or closely or substantially resembles, that supply of goods.

Warranty to be treated as a component of composite supply

 If any warranty is given with the supply of any goods or services, it shall be treated as ancillary and the entire supply will be termed as composite supply. Composite supply will be treated as the supply of principal good or service.

Avalara is an experienced application service provider (ASP) and partner of authorized GST Suvidha Providers (GSPs). To understand how our cloud-based application Avalara TrustFile GST can help you with GST compliance automation, contact us through https://www.avalara.com/in/products/gst-returns-filing.

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Qualification: Student - CA/CS/CMA
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Location: Jaipur, Rajasthan, IN
Member Since: 31 Oct 2017 | Total Posts: 2

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