Summary: Notification No. 03/2026 – Central Tax dated 26.10.2026 [S.O. 5791(E)] brings Sections 153, 154 and 155 of the Finance Act, 2026 into force from 1 November 2026. These provisions amend Sections 15, 34 and 54 of the CGST Act, 2017, affecting post-supply discounts, credit notes and GST refunds. The amended Section 15(3)(b) removes the earlier requirements for a pre-existing agreement and specific invoice linkage for post-supply discounts. Instead, the supplier must issue a credit note under Section 34, and the recipient must reverse the attributable input tax credit. Section 34(1) is correspondingly amended to expressly recognise post-supply discounts as a ground for issuing credit notes. The amendments to Section 54 extend the provisional refund framework to eligible inverted duty structure claims and remove the ₹1,000 minimum refund restriction for goods exported with payment of tax. Businesses should review discount arrangements, credit-note procedures, ITC reversal documentation, GST reporting systems and refund processes. Transitional issues and compliance with prescribed conditions remain important. The notification brings only the specified Finance Act provisions into force, not every GST amendment or Council recommendation.
- 1. Introduction and Notification Background
- 2. Section-Wise Legal Analysis
- 2.1 Section 153 of Finance Act, 2026 – Amendment to Section 15(3)(b) of CGST Act – Post-Supply Discounts
- 2.2 Amendment to Section 34(1) of CGST Act – Credit Notes
- 2.3 Amendment to Section 54 of CGST Act – Refunds
- i) Amendment to Section 54(6) – Provisional Refund for Inverted Duty Structure
- ii) Amendment to Section 54(14) – Removal of Minimum Threshold for Export Refunds
- 3. Practical Implications and Compliance Checklist for Assessees
- 4. Conclusion
1. Introduction and Notification Background
The Central Board of Indirect Taxes and Customs, in exercise of powers conferred under Section 1(2)(b) of the Finance Act, 2026, vide Notification No. 03/2026-Central Tax dated 26th October, 2026, has appointed 1st November, 2026 as the date on which Sections 153, 154 and 155 of the Finance Act, 2026 shall come into force.
The said provisions amend Sections 15, 34 and 54 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”). These amendments were originally introduced as Clause 137 to 139 of the Finance Bill, 2026 under the Union Budget 2026-27.
It is clarified that this notification commences only Sections 153-155; it does not notify every GST amendment or Council recommendation.
2. Section-Wise Legal Analysis
2.1 Section 153 of Finance Act, 2026 – Amendment to Section 15(3)(b) of CGST Act – Post-Supply Discounts
Earlier Position:
Under the erstwhile Section 15(3)(b), a post-supply discount could be excluded from the value of supply only if:
(i) such discount was established in terms of an agreement entered into at or before the time of supply and specifically linked to relevant invoices; and
(ii) Input Tax Credit (ITC) as is attributable to the discount had been reversed by the recipient.
Amended Position w.e.f. 01.11.2026:
Clause (b) has been substituted. The amended provision provides that a post-supply discount shall be excluded from the transaction value where:
a) a credit note is issued by the supplier under Section 34; and
b) the recipient reverses the related ITC.
Legal Effect:
The earlier prior-agreement condition and specific invoice-linkage condition is removed. The legislature has simplified the treatment of post-supply discounts by removing the earlier requirements for a pre-existing agreement. The statutory linkage is now between valuation benefit, issuance of credit note, and reversal of attributable ITC by the recipient.
2.2 Amendment to Section 34(1) of CGST Act – Credit Notes
Amended Position:
Section 34(1) has been amended to expressly permit issuance of a credit note where a discount referred to in Section 15(3)(b) is granted after the supply has been effected.
Legal Effect:
A discount under Section 15(3)(b) becomes an express ground for issuing a credit note. This removes the departmental disputes where officers contended that post-supply discounts without a pre-agreement were not a valid ground for credit note. Applicable Section 34 requirements and reporting timelines continue to apply.
2.3 Amendment to Section 54 of CGST Act – Refunds
i) Amendment to Section 54(6) – Provisional Refund for Inverted Duty Structure
Section 54(6) has been amended to extend the provisional refund framework to refunds of unutilised ITC allowed under clause (ii) of the first proviso to Section 54(3).
Earlier, the facility of 90% provisional refund within 7 days was available only for zero-rated supplies. Now, up to 90% provisional refund is extended to eligible inverted duty structure claims. This will improve working capital availability, subject to prescribed conditions, limitations and safeguards, and final verification continues.
ii) Amendment to Section 54(14) – Removal of Minimum Threshold for Export Refunds
Section 54(14) has been amended to carve out an exception for refund claims relating to goods exported out of India with payment of tax.
Earlier, Section 54(14) provided that no refund shall be allowed if the amount is less than Rs. 1,000. Now, the Rs. 1,000 minimum refund restriction will not apply to tax refunds on goods exported out of India with payment of tax. The amendment provides greater clarity and relief to small exporters, including those exporting via courier or e-commerce.
3. Practical Implications and Compliance Checklist for Assessees
1. Review of Discount Policy: All volume discounts, target incentives, secondary schemes must be re-drafted. The requirement of pre-supply agreement is no longer mandatory, but credit note + ITC reversal mechanism must be documented.
2. Recipient ITC Reversal: Supplier must obtain documentary evidence / declaration from recipient regarding reversal of ITC. Contractual indemnity clause is advised.
3. System Changes: SAP/GSTR-1 reporting for credit notes under Section 34 to be aligned with new express ground.
4. Refund Strategy: Assessees having accumulated ITC due to inverted duty structure (e.g., Textile, Footwear, Fertilizer, Pharma) should prepare for provisional refund claims.
5. Transitional Issues: Discounts given prior to 01.11.2026 but credit notes issued after 01.11.2026 – transitional provision interpretation will be crucial. Pending litigations on old Section 15(3)(b) may become infructuous.
4. Conclusion
The amendments provide a clearer statutory framework for GST treatment of post-supply discounts by linking valuation benefits to issuance of credit notes and reversal of ITC, and broaden the scope of provisional refunds. It is a taxpayer-friendly measure intended to reduce litigation on discounts and to ease liquidity for inverted duty and small exporters.
Assessees are advised to undertake a pre-implementation review before 01.11.2026.
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Disclaimer: This article is for informational purposes only and does not constitute legal advice. Stakeholders should refer to the official GSTN Advisory and consult their tax advisor for specific situations.
