Key points
- On-bill discounts are left out of the taxable value if recorded on the invoice at or before the supply (section 15(3)(a)).[1]
- Post-sale discounts reduce value only if agreed at or before the supply, linked to the invoices, and the recipient reverses the ITC (section 15(3)(b)).[1]
- The Finance Act 2026 substitutes clause 15(3)(b) to rely on a section 34 credit note plus ITC reversal, but CBIC shows it as not yet in force.[1]
- Credit notes must be declared by 30 November after the year of the sale, and since 1 Oct 2025 the supplier's tax falls only if the recipient has reversed the ITC.[2]
- Buy-one-get-one is two goods for one price, not a free supply; free samples are not a supply, and ITC on them is blocked.[3][4]
The scheme types and their GST treatment
| Scheme | Example | GST treatment |
|---|---|---|
| Party-wise rate | Wholesaler A pays ₹92 a unit, retailer B pays ₹96 | Each bill is taxed on its own price. No special rule |
| Quantity slab on the bill | 5% off on 100+ cartons | Discount on the invoice reduces taxable value (15(3)(a)) |
| Cash discount for early payment | 2% if paid in 7 days | If known and shown at the time of sale, on the bill; if given later, it is a post-sale discount |
| Target or turnover discount | 1.5% back if quarter sales cross ₹10 lakh | Post-sale: credit note, only if the 15(3)(b) conditions are met |
| Buy-one-get-one | Buy 10, get 1 free | Two or more goods sold for one price; tax on the price charged, rate per composite or mixed supply rules[3] |
| Free samples and gifts | Display samples for retailers | Not a supply (unless Schedule I applies); ITC on them is blocked[3][4] |
On the bill: the simple case
If the discount is known when you bill, show it on the invoice. Section 15(3)(a) leaves it out of the value of supply, so GST is charged on the reduced price.[1] Quantity slabs, festive schemes and party-wise rates should all work this way, because there is no credit note, no ITC reversal for the retailer and nothing to match later.
After the sale: the conditions
Target discounts are usually worked out at quarter end, so they come after the bills. Under the clause now in force, the discount reduces your taxable value only if:[1]
- it was agreed at or before the supply, for example in a written scheme circular sent to retailers before the quarter;
- it is specifically linked to the invoices it relates to; and
- the retailer has reversed the ITC attributable to the discount.
Finance Act 2026 (section 153) substitutes this clause so that a discount by a credit note under section 34, with the recipient reversing ITC, is enough. CBIC's text shows the substitution with effect from a date "yet to be notified".[1] Until it is notified, keep meeting all three conditions.
If the conditions are not met, many businesses issue a commercial (financial) credit note without GST, which reduces what the retailer owes but not your tax. Ask your CA which applies to your scheme. சரிபார்
Credit note deadline and IMS
A GST credit note must be declared in the return for the month it is issued, and not later than 30 November after the end of the financial year of the sale, or the annual return date if earlier.[2] Since 1 October 2025, section 34(2) also says you get no reduction in output tax if the registered retailer has not reversed the ITC on it.[2] Your credit note reaches the retailer's IMS, where they can accept, reject or (for one tax period) keep it pending; if they reject it, your liability goes back up.[5] See credit note time limit.
Free goods and samples
CBIC's Circular 92/11/2019-GST explains that "buy one, get one free" is not a free supply: it is supplying two goods for the price of one, and the tax depends on whether it is a composite or mixed supply.[3] Free samples given without consideration are generally not a supply, unless the activity falls in Schedule I, and section 17(5)(h) blocks ITC on goods given as free samples or gifts.[3][4] The 57th GST Council has recommended removing the block on free samples; until that is notified, the block stands.[6]
Worked example, in rupees
Shree Ganesh Distributors, Rajkot (sample firm) supplies biscuits (5% GST) to Retailer R. Its scheme circular, sent on 25 June 2026, offers 5% off on the bill for 100+ cartons and a 1.5% quarterly target discount if July–September purchases cross ₹10,00,000.
| Step | Value | GST 5% | Notes |
|---|---|---|---|
| Bill on 14-07-2026, 120 cartons × ₹1,000 | ₹1,20,000 | Gross | |
| Less 5% slab discount on the bill | −₹6,000 | 15(3)(a) | |
| Taxable value | ₹1,14,000 | ₹5,700 | Bill total ₹1,19,700 |
| Quarter purchases (all bills) | ₹11,40,000 | Target of ₹10,00,000 crossed | |
| Credit note on 05-10-2026, 1.5% | −₹17,100 | −₹855 | Linked to the quarter's invoices |
The credit note reduces Shree Ganesh's output tax by ₹855 once Retailer R reverses ₹855 of ITC, and must be declared well before 30 November 2027 (for FY 2026-27 sales).[2] Because the scheme was circulated before the quarter and the credit note lists the invoices, the 15(3)(b) conditions are met. If the scheme had been announced only in October, the discount would not reduce taxable value under the clause now in force.[1]
Setting schemes up so returns agree
- Write the scheme down with dates, slabs and payout rules, and send it to retailers before the period begins.
- Put every discount you can on the bill itself.
- For target discounts, plan the credit note: list the invoices it covers.
- Tell retailers to accept your credit notes in IMS and reverse the ITC.
- Issue credit notes inside the deadline; keep a list of any not yet accepted.
How Moharbill helps
- Schemes engine: quantity slabs, festive schemes and party-wise rates applied on the bill as you type. See promotions and retailer portal.
- Credit notes with deadline alerts, linked to the invoices they relate to.
- Built for FMCG distributors; rates checked with the free GST calculator.
Frequently asked questions
Is GST charged on a discount shown on the invoice?
No. Under section 15(3)(a) of the CGST Act, a discount given before or at the time of supply and recorded on the invoice is not part of the value of supply.
Can I reduce GST for a discount given after the sale?
Under the clause now in force, only if the discount was agreed at or before the supply, is linked to the relevant invoices, and the recipient has reversed the matching ITC. The Finance Act 2026 replacement clause is not yet in force.
Is buy one get one free taxed under GST?
CBIC Circular 92/11/2019-GST treats it as supplying two goods for the price of one, not as a free supply. Tax is charged on the price, with the rate set by composite or mixed supply rules.
Can I claim ITC on free samples?
No. Section 17(5)(h) blocks ITC on goods given away as free samples or gifts. The 57th GST Council has recommended removing this block, but it has not been notified yet.
What is the last date to issue a GST credit note?
It must be declared in the return by 30 November after the end of the financial year of the supply, or the date of filing the annual return if earlier.
Sources
All read on 17 Oct 2026.
- CGST Act 2017, section 15(3), with the note on substitution by section 153 of the Finance Act 2026 "w.e.f. yet to be notified", CBIC. taxinformation.cbic.gov.in
- CGST Act 2017, section 34(2) and proviso, CBIC. taxinformation.cbic.gov.in
- CBIC Circular No. 92/11/2019-GST, 7 Mar 2019 (free samples, buy-one-get-one, discounts). cbic-gst.gov.in
- CGST Act 2017, section 17(5)(h), CBIC. taxinformation.cbic.gov.in
- GSTN, advisory on the Invoice Management System (credit notes, supplier liability when rejected). tutorial.gst.gov.in
- PIB, "Recommendations of the 57th Meeting of the GST Council", 8 Oct 2026, para B1.9 (section 17(5)). gstcouncil.gov.in
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