# Section 15(3) — Discounts: When They Are Excluded from Value

Not every discount reduces the taxable value. Section 15(3) sets two distinct rules depending on WHEN the discount is given.

## Two Categories of Discounts

### A. Pre/At-Supply Discounts — Section 15(3)(a)

Deductible from value if:

The discount is duly recorded in the invoice issued for the supply.

This is straightforward — invoice-recorded discounts simply reduce the taxable value.

### B. Post-Supply Discounts — Section 15(3)(b)

Deductible only if BOTH conditions are satisfied:

1. Discount is established by an agreement entered into at or before the time of supply, AND it is specifically linked to relevant invoices, AND

2. The recipient reverses the proportionate ITC attributable to the discount, based on documents issued by the supplier.

## Why Post-Supply Discounts Are Tricky

Common post-supply discount types — cash discount for timely payment, quantity/volume/performance discounts — cannot be put on the original invoice because the entitlement is uncertain at the time of supply.

Process flow when 15(3)(b) is satisfied:

1. Supplier raises invoice at gross value, pays GST on gross.

2. Discount confirmed later → supplier issues a GST credit note.

3. Supplier reduces output tax liability; recipient reverses proportionate ITC.

If 15(3)(b) conditions are NOT met: Supplier may still issue a commercial / financial credit note (without GST), but cannot reduce his GST liability, and buyer is not required to reverse ITC.

## CBIC Circular No. 92/11/2019-GST — Specific Discount Types

### (i) Staggered ("Buy more, save more") Discounts

Shown on invoice at the time of supply → excluded from value under 15(3)(a). Example: 10% off on purchases above Rs. 5,000.

### (ii) Periodic / Year-Ending / Volume Discounts

Excluded from value only if 15(3)(b) conditions are met — agreement pre-existed, invoice-wise linkage possible, recipient reverses ITC.

Example: 1% on 10,000 pieces, 2% on 15,000 pieces in a year.

### (iii) Secondary Discounts

Unknown at the time of supply → 15(3)(b) fails → NOT excluded from value.

The supplier may issue a commercial/financial credit note (without GST), but it has no impact on the value or GST originally paid.

## No Claim Bonus (NCB) in Insurance

If NCB is disclosed in the policy and shown on the invoice, it qualifies as a discount under Section 15(3)(a). GST is leviable only on the net premium after NCB deduction.

## Summary Decision Table

Discount Type	Pre-Agreed?	On Invoice?	Linked to Invoices?	ITC Reversed?	Deductible?
Invoice-recorded discount	—	Yes	—	—	Yes (15(3)(a))
Cash/early payment (pre-agreed)	Yes	No	Yes	Yes	Yes (15(3)(b))
Volume/turnover (pre-agreed)	Yes	No	Yes	Yes	Yes (15(3)(b))
Negotiated only at payment	No	No	—	—	No
Year-end performance cash-back (not pre-agreed)	No	—	—	—	No
Secondary (re-valuation) discount	No	No	—	—	No

Worked example

### Example 1

Royal Biscuit Co. — Invoice Discount [15(3)(a)]: Selling a Rs. 200 carton at 30% discount, shown on the invoice; final value Rs. 140.

Answer: Deductible. Value of supply = Rs. 140. GST charged on Rs. 140.

### Example 2

Raju Electrical Appliances — Volume Discount [15(3)(b)]: 5% post-supply discount on cookers, given to dealers crossing 1,000 units during Diwali. Agreement existed at supply, invoice-wise traceable, GST credit note issued, dealer reverses proportionate ITC.

Answer: All Section 15(3)(b) conditions satisfied → discount deductible; supplier reduces output GST liability.

### Example 3

PBPL — Cash Discount Pre-Agreed: Sale: Rs. 50,000 goods + Rs. 9,000 IGST. 2% discount for payment within 1 month is pre-agreed. Buyer pays on time. Credit note (with GST) issued; buyer reverses proportionate ITC.

Answer: Deductible under 15(3)(b). Supplier reduces GST liability.

### Example 4

PBPL — Same Facts, Discount NOT Pre-Agreed: Discount negotiated only at the time of payment.

Answer: Condition under 15(3)(b)(i) fails. Only a commercial credit note (without GST) can be issued. Supplier cannot reduce GST; buyer not required to reverse ITC.

### Example 5

Turnover Discount Announced After Year-End: Company announces cash-back based on dealer performance only after year-end (not agreed at supply).

Answer: Not deductible — discount was not known at supply. No adjustment to GST possible.

### Example 6

Secondary Discount Example (Re-valuation): M/s A supplies biscuits at Rs. 10 each, later re-values to Rs. 9 and issues a credit note of Rs. 1 per packet to M/s B.

Answer: This is a secondary discount — not deductible. A financial/commercial credit note (without GST) may be issued; original value of supply remains Rs. 10 per packet.

⚠️ Common exam mistakes

Treating all post-supply discounts as deductible — they are deductible only if BOTH conditions of 15(3)(b) are met (pre-agreed + invoice-linked + ITC reversal).
Assuming a commercial credit note reduces GST liability — it does NOT; only a GST credit note linked to a 15(3)(b)-compliant discount does.
Missing the ITC reversal step on the buyer side — without recipient's reversal, supplier cannot reduce his output tax liability.
Confusing staggered discounts (shown on invoice → 15(3)(a)) with secondary discounts (post-supply re-valuation → not deductible).
Forgetting that NCB in insurance, if disclosed in the policy/invoice, is a valid 15(3)(a) discount.

Bare-Act text Section 15(3) · CGST Act, 2017 (read with Circular No. 92/11/2019-GST dated 07.03.2019) · click to expand

Sec 15(3): The value of the supply shall not include any discount which is given— (a) before or at time of the supply if such discount has been duly recorded in 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 discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

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Section 15(3) - Treatment of Discounts

Worked example

⚠️ Common exam mistakes