In the present times, Covid 19 has been creating disruption in the world economy. The impact of this pandemic on several industries is unprecedented. It has in-fact affected all industries especially, tourism, hospitality, aviation, textile, automobile, gems and jewellery and real estate.

The pandemic has created a disbalance between the demand of essential and non-essential goods. During and post pandemic, the consumers are expected to spend more on essential items such as, groceries and healthcare whereas cutting down their expenditure on non-essential items such as, branded apparels, gold, motor vehicles, so on and so forth.

The low demand of non-essential goods may result in tempting offers from various industries to clear their existing stock before moving on to producing fresh ones. The industries may tend to resort to schemes such as, upfront cash discounts, buy one get one, free gifts, secondary discount and staggered discounts.

Promotional Schemes Post Covid 19



Under GST, the valuation of supply is done in terms of Section 15 of the CGST Act, 2017. It provides for certain exclusions such as, subsidy and discount, for the purposes of determination of taxable value. However, the exclusion of “discount value” comes with certain qualifications, which are read as follows:

Section 15(3) – The value of the supply shall not include any discount which is given –

(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and

(b) after the supply has been effected, if –

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.”

Input Tax Credit (‘ITC’)

Section 17 of the CGST Act, 2017 deals with apportionment of credit and blocked credit. It provides that the ITC in respect of goods which are given as free gifts will not be available to the taxpayer. Section 17(5)(h) of the CGST Act, 2017 reads as under:

Section 17(5) – Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely :—


(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples”


The impact of the above provision on certain promotion schemes can be understood as under:

1. Upfront Cash Discount

It is very common type of promotional scheme on the trade. The supplier gives a flat rate of discount of purchase of particular goods.

Valuation – The value of discount shall be excluded from the taxable value.

ITC – The supplier shall be eligible for entire ITC on the said taxable supplies.

2. Buy one get one free

This is customer centric scheme wherein the customer is offered two goods for the price of one. As the supplementary item is supplied free of cost, the element of “consideration” is absent and hence, extra items cannot be taxed under GST.

Valuation – In such cases, the value for the purpose of GST shall be the actual amount charged from the customer.

Rate If the two items attracts different tax rate, the rate will be determined based on the fact that whether the supply is a composite supply or a mixed supply.

ITC Such supplies are considered as supply of two items at single price and not two individual supplies. Therefore, the second item is not considered as a free gift. Thus, the taxpayer is eligible for the entire ITC on such taxable supplies.

3. Free Gift

It is very common in trade to give free gifts to the customer upon purchase of goods exceeding a certain value. Such schemes are regularly run by the multi-brand retail stores.

Valuation A free gift is always without consideration and therefore, the same does not qualify as a supply under GST. Thus, no GST is applicable upon the free gift.

ITC – ITC in respect of goods disposed by way of free gift is specifically blocked under Section 17(5)(h) of the CGST Act, 2017. Therefore, no ITC can be availed against goods given as free gift.

4. Staggered Discounts – Buy more Save more

Most of the supplier’s resort to staggered discount scheme in order to augment their sale. In a staggered discount scheme, they provide different discount rates to the customer based on the value of their purchase. For example: 5% discount on purchase of INR 10,000/- and 10% discount on purchase of INR 15,000/-.

Valuation – Amount of discount shall be excluded from the taxable value.

ITC The supplier shall be eligible for entire ITC on the said taxable supplies.

5. Secondary Discount

Secondary discount is the discount which is provided post the supply being made and is not known at the time of making such supply. Such discounts may or may not be based on pre-agreed terms between the supplier and the recipient.

Generally, the secondary discount is given by way of issuing a credit note.

Valuation – If the discount is based on pre-agreed terms, then the value of discount shall be excluded from the taxable value and if it is not based on pre-agreed terms, then the value shall not be excluded from the taxable value.

ITC The supplier shall be eligible to avail entire ITC on such taxable supplies.


The supplier resorting to any promotional schemes must take into consideration, the provisions of Section 15 and Section 17 of the CGST Act, 2017. It is very important to declare and pay tax based on the correct transactional value and it is equally important to not avail ITC on such inputs, input services and capital goods which are blocked under Section 17 of the CGST Act, 2017.

A wrong decision with respect to transactional value and availment of ITC can lead to financial hardship upon the taxpayer as it will call for additional payment of tax along with interest and penalty, if any. Therefore, it is advisable to double check the transactional value and ITC on supplies made under any promotional scheme, post Covid 19.

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Qualification: LL.B / Advocate
Location: AHMEDABAD, Gujarat, India
Member Since: 14 Apr 2018 | Total Posts: 155
As a Counsel, his focus areas of practice are Arbitration, GST/indirect tax, Customs, International Laws, Regulatory, Data Privacy, Employment Laws & White collar crimes. As a strategic advisor, he has a rich experience in M&A, Joint ventures, Due Diligence and Cross border transactions. View Full Profile

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  1. JAYENDRA says:

    If we prepare a bill & supply to customers.
    At the time of payment, if the customer deducts the discount for early payment as per market practice, say, within seven or ten days.
    This discount is not given at the time of supply and is not known to supplier but depends on the customer’s capacity to bulk purchase and and make payments within stipulated period.

    Then in such case what will be the implications as far as Section 15(3) is concerned?

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