1. Provisions Relating to Post-Supply Discounts
Under the Union Budget 2026, significant amendments have been proposed in the Goods and Services Tax (GST) framework. The provisions relating to post-supply discounts have been rationalised by amending Section 15(3)(b) of the CGST Act to make the tax treatment of such discounts clearer, more flexible, and business-friendly. The earlier rigid conditions affecting reduction of taxable value on account of post-supply discounts have been relaxed.
Under the earlier provisions, a post-supply discount could be deducted from the taxable value only if it was specifically agreed upon before or at the time of supply and was directly linked to the relevant invoice. These requirements created practical and commercial difficulties. Under the amended provision, the condition of a pre-existing agreement has been removed, and post-supply discounts will now be permissible as deductions from taxable value subject to fulfilment of prescribed conditions.
As per the revised framework, the supplier must mandatorily issue a credit note in accordance with Section 34. Such credit note must clearly specify the post-supply discount granted. Further, the recipient is required to reverse the proportionate Input Tax Credit (ITC)) attributable to such discount. This ensures revenue neutrality.
Accordingly, post-supply discounts such as annual turnover discounts, volume rebates, and performance incentives will qualify for deduction even without a prior written agreement or invoice linkage, subject to issuance of a proper credit note and proportionate ITC reversal by the recipient.
Illustration:
If goods worth ₹1,00,000 are supplied with GST of 18% (₹18,000), and later a post-supply discount of ₹10,000 is granted without prior agreement, the supplier may now issue a credit note for ₹10,000 plus GST of ₹1,800. The taxable value will stand reduced to ₹90,000 and GST to ₹16,200. The supplier may reduce output tax by ₹1,800 and the recipient must reverse equivalent ITC, maintaining revenue neutrality.
Business Impact:
This amendment will reduce litigation relating to discount eligibility, simplify incentive and rebate schemes for distributors and dealers, and align GST compliance with commercial practices while safeguarding revenue through mandatory ITC reversal.
The amendment will take effect from a date to be notified by the Central Government (proposed to apply after 1 April 2026).
2. Amendment to Section 34 – Inclusion of Reference to Section 15
A significant amendment has been proposed in Section 34 to establish explicit statutory linkage between valuation provisions (Section 15) and credit note provisions (Section 34). A specific reference to Section 15—particularly Section 15(3)(b)—is being inserted so that post-supply discounts are expressly recognised as a valid ground for issuance of credit notes.
Earlier, Section 34 permitted issuance of credit notes where taxable value or tax charged exceeded the actual liability, goods were returned, or deficiencies in supply were identified. Post-supply discounts were not expressly covered. The amendment now formally recognises post-supply discounts as a lawful basis for issuing credit notes, subject to prescribed particulars and conditions.
Effect:
This creates statutory clarity, reduces interpretational disputes, and ensures consistency between valuation adjustment and credit note mechanisms.
3. Amendment to Refund Provisions – Section 54 (Provisional Refund for Inverted Duty Structure)
An important amendment has been proposed in Section 54(6) to extend provisional refund facility to cases involving accumulation of unutilised ITC due to inverted duty structure. Under the revised provision, refund claims relating to unutilised ITC arising where the input tax rate exceeds the output tax rate will be eligible for provisional refund up to 90%. Earlier, provisional refunds were largely restricted to zero-rated supplies such as exports.
A specific phrase is being inserted to include refund claims under Section 54(3), first proviso clause (ii), within the scope of provisional refunds under Section 54(6). Up to 90% may be granted provisionally, with the balance 10% released after detailed verification and audit. No other fundamental change is made to the refund process.
Illustration:
If a textile manufacturer accumulates unutilised ITC of ₹16,600 due to higher input tax rate, up to ₹14,940 (90%) may now be granted as provisional refund shortly after claim filing, instead of waiting several months for full scrutiny.
Impact:
This will significantly improve working capital for sectors such as textiles, chemicals, metals, and steel, reduce refund delays, lower financing costs, and decrease refund-related litigation.
4. Removal of ₹1,000 Minimum Refund Threshold for Export of Goods
An amendment is proposed in Section 54(14) to remove the minimum refund threshold of ₹1,000 in cases of export of goods on payment of tax. Earlier, refund claims below ₹1,000 were not admissible. After amendment, refund will be allowed irrespective of amount, subject to fulfilment of other conditions. This benefits small and medium exporters and brings parity and fairness in refund processing.
5. Change in Place of Supply Rules for Intermediary Services
Under the Finance Bill, 2026, it is proposed to delete clause (b) of sub‑section (8) of Section 13 of the IGST Act, 2017. This amendment removes the special place‑of‑supply rule for intermediary services, thereby subjecting them to the general rule.
Prior to the amendment, Section 13(8)(b) deemed the place of supply for intermediary services to be the location of the supplier. As a result, even when an Indian service provider rendered intermediary services to a foreign client, the place of supply was considered India. Such transactions were not treated as exports, IGST at 18% was levied, and zero‑rating benefits or refunds were denied, notwithstanding receipt of consideration in foreign currency.
After the amendment, with clause (b) omitted, intermediary services fall under the general rule in Section 13(2), which provides that the place of supply shall be the location of the recipient of services. Accordingly:
If the recipient is located outside India and other statutory conditions (such as receipt of consideration in foreign currency) are satisfied, the service qualifies as an export and is treated as zero‑rated. The supplier may claim refund of input tax credit (ITC) or supply under LUT without payment of tax.
If the recipient is located in India and the service is procured from a foreign supplier, GST liability arises under the reverse charge mechanism (RCM).
Example – Export of Intermediary Services:
An IT company in Pune facilitates transactions between a foreign client and third‑party vendors, charging ₹1 crore in foreign currency. Before the amendment, the place of supply was deemed India, IGST at 18% was payable, and refund was unavailable. After the amendment, the place of supply is outside India, the service qualifies as export, and zero‑rating benefits including ITC refund or tax‑free supply under LUT are available.
Example – Import of Intermediary Services:
An exporter in Mumbai engages a foreign agent and pays ₹20 lakh commission. After the amendment, the place of supply is India, and GST is payable under RCM. However, the exporter may claim ITC on such tax, rendering the transaction tax‑neutral.
Impact:
- Exporters of intermediary services gain access to zero‑rating benefits, refunds, improved cash flow, and enhanced competitiveness.
- Litigation risk is reduced, as the amendment aligns GST treatment with the destination‑based principle of taxation.
- For imports, RCM ensures revenue protection, while ITC availability maintains neutrality for eligible taxpayers.
6) Interim Mechanism for Appeals Against Conflicting Advance Rulings
The Union Budget 2026 proposes insertion of a new sub‑section (1A) in Section 101A of the CGST Act, 2017. The objective is to provide an interim statutory mechanism for hearing appeals against conflicting advance rulings until the National Appellate Authority is formally constituted. This amendment takes effect from 1 April 2026.
Under the new sub‑section (1A), the Central Government may, by notification, empower an existing tribunal to hear appeals filed under Section 101B against conflicting advance rulings. The provisions of sub‑sections (2) to (13) of Section 101A, relating to composition, qualifications, appointment, service conditions, and procedure of the National Appellate Authority, will not apply to such tribunal. Instead, the tribunal will hear appeals under its existing procedural framework.
Before the amendment, Section 101A(1) contemplated establishment of a National Appellate Authority to resolve conflicting rulings issued by different State Appellate Authorities for Advance Ruling (AAR/AAAR). However, since the Authority was not operational, taxpayers and departmental officers lacked an effective forum under Section 101B. Consequently, they were compelled to approach High Courts or operate under legal uncertainty, leading to inconsistent tax classification, rates, and liability across states, and increasing litigation risk.
After the amendment, the interim arrangement ensures that:
- The Central Government, on GST Council’s recommendation, may notify an existing tribunal to hear appeals against conflicting rulings.
- The tribunal’s jurisdiction will be confined to such appeals and will not extend to regular tax disputes, ITC issues, or other appellate matters.
- By excluding sub‑sections (2) to (13), procedural hurdles of establishing a new authority are avoided.
Example:
Suppose one State AAR rules that a product attracts 5% GST, while another State AAR rules that the same product attracts 18%. Before the amendment, appeals against such contradictory rulings remained pending due to non‑existence of the National Appellate Authority. After the amendment, taxpayers can directly appeal to the notified tribunal, which will deliver a uniform national ruling.
Impact:
- Greater certainty and uniformity in taxability of multi‑state transactions.
- Filling of the appellate vacuum, reducing pendency and delays.
- Relief to taxpayers from prolonged uncertainty and inconsistent compliance risks.
- Reduction of additional burden on High Courts.
- Efficient use of existing tribunal infrastructure without creating new bodies.
Conclusion
The omission of Section 13(8)(b) harmonizes GST treatment of intermediary services with the destination‑based principle, enabling exports to enjoy zero‑rating benefits and reducing disputes. The insertion of Section 101A(1A) provides a practical interim mechanism for appeals against conflicting advance rulings, ensuring national consistency until the National Appellate Authority is established. Together, these amendments strengthen the GST framework by enhancing fairness, efficiency, and certainty in its application.
Implementation:
Both amendments will come into force from the date notified by the Central Government in the Official Gazette.
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