# Discounts — Exclusion from Value of Supply [Section 15(3)]

Discounts can be classified by timing, and each type follows different rules.

## (1) Pre-supply or On-supply Discount

Examples: 'Buy more, Save more' offers, trade discount.

Excluded from value of supply if BOTH:

Discount given before or at the time of supply, AND
Discount shown on the invoice.

If shown on invoice and given on/before supply → reduce straight from value of supply.

## (2) Post-supply Discount

Examples: payment discount, volume discount, secondary discount.

Not every discount can be decided upfront. A post-supply discount may still be reduced from value of supply, but only if ALL THREE conditions are satisfied:

1. Discount is as per terms agreed in a contract existing at the time of supply, AND

2. Discount is linked to specific invoices, AND

3. The recipient has reversed proportionate ITC.

If even one condition fails, the discount cannot reduce the value of supply (typically handled via a financial/commercial credit note — see Circular below).

## Special: No Claim Bonus (NCB) by Insurance Companies

When no claim is made under a policy in the previous period, the insurer reduces the current period's gross premium by an amount called No Claim Bonus.

This is a pre-supply discount recorded on the invoice.
→ Net premium (after NCB) is the value of supply.

## Circular — Clarifications on Post-Supply / Secondary Discounts

### (i) Financial / Commercial Credit Note (NOT a GST credit note)

When a supplier issues a commercial credit note (i.e., NOT under Section 34 of CGST Act):

The supplier's GST liability is NOT reduced.
The recipient does NOT have to reverse ITC.

This is purely a commercial settlement; tax remains on the original value.

### (ii) Can a post-supply discount be treated as consideration paid by the manufacturer to dealer for further supply to end customer?

If there is no agreement between manufacturer and the end customer → it is not a supply.
If there is an agreement between manufacturer and end customer → it is included in the supply value.

### (iii) Can a post-supply discount be treated as consideration for promotional activities by the dealer?

Only if BOTH:

The dealer undertakes specific promotional activities (advertisement, branding, etc.), AND
The consideration for those activities is clearly stated in the agreement.

Worked example

### Example 1

Example — Pre-supply discount on invoice

List price ₹ 1,00,000. Invoice shows 3% trade discount ₹ 3,000 at the time of supply.

Value of supply = ₹ 1,00,000 − ₹ 3,000 = ₹ 97,000 (3% discount allowed because it is shown on invoice and given on/before supply).

### Example 2

Example — Discount given later at payment, not on invoice

ABC Ltd. recorded a 3% on-invoice discount of ₹ 3,000 (allowed) and additionally granted ₹ 2,000 at the time of payment (not on invoice, no pre-existing contract terms).

The ₹ 2,000 fails the post-supply test → cannot be reduced from value of supply.

### Example 3

Example — No Claim Bonus

Gross premium ₹ 12,000. Insurer applies NCB of ₹ 2,000 on the invoice.

Value of Supply = ₹ 10,000 (NCB is a pre-supply discount on invoice).

⚠️ Common exam mistakes

Reducing post-supply discounts without checking the three-pronged test (pre-existing contract terms, invoice linkage, ITC reversal by recipient).
Confusing a financial/commercial credit note with a GST credit note (Section 34) — only the latter reduces output tax liability.
Treating NCB as something other than a normal pre-supply discount — it is just a discount shown on the invoice.
Forgetting that the recipient must reverse ITC for a post-supply discount to be valid.

Bare-Act text Section 15(3) · CGST Act, 2017 · click to expand

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.

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Exclusion of Discount from Value of Supply [Section 15(3)] and Circulars

Worked example

⚠️ Common exam mistakes