Post Sales Discount - Issuing Credit Note With or Without GST?

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April 05, 2025

Post Sales Discount - Issuing Credit Note With or Without GST?

📌 What is More Beneficial for the Supplier in case of post sale discount : Issuing Credit Note With or Without GST?

Strictly from the supplier’s point of view, the choice depends on a balance between administrative convenience, risk exposure, and commercial relationships. Here's a detailed comparison backed by logic, law, and examples:

✅ Option 1: Credit Note With GST

📈 Benefits:

1. No Dependency on Recipient for ITC Reversal:
• Once GST is adjusted through the credit note, recipient automatically reverses ITC in GSTR-2B.
• No need for CA/CMA certificates or recipient declarations (as per Circular 212/6/2024)​.
2. Full Legal Clarity & No Dispute:
• 100% compliance with Section 15(3)(b) of CGST Act.
• Strongest position in scrutiny, audit, or litigation.
3. Recipient Relationship Simplified:
• No awkward follow-ups for reversal undertakings.
• Better for large clients who may be reluctant to issue ITC reversal certificates.
4. Supports Commercial Transparency:
• Everything is tax-inclusive and flows via portal: invoice → credit note → GSTR-1/GSTR-2B.

📉 Drawbacks:

• Supplier must reduce output tax liability in GSTR-1/GSTR-3B (i.e., refund of GST is claimed).
• May trigger refund delays or questions during audits if ITC chain is mismatched.

🧾 Example:

Original invoice = ₹1,00,000 + 18% GST = ₹1,18,000
Post-supply discount = ₹10,000
➡ Credit Note With GST = ₹10,000 + ₹1,800 GST
➡ Supplier reduces outward tax liability by ₹1,800.
➡ Recipient’s ITC also reduced by ₹1,800 (via auto-populated GSTR-2B).

✅ Option 2: Credit Note Without GST

📈 Benefits:

1. No Change in Tax Liability for Supplier:
• GST paid on full invoice value stays untouched.
• Keeps revenue reporting straightforward and cash flow stable.
2. Faster Execution, No System Complexity:
• No need to file amended GSTR-1/GSTR-3B.
• Simpler accounting for suppliers with limited compliance bandwidth.
3. Used When Discount is Commercial/Narrative in Nature:
• Common in FMCG, pharma, and consumer goods, where discounts are purely financial adjustments (as clarified in Circular 92/2019 & AAR rulings)​​.

📉 Drawbacks:

• Requires proof of ITC reversal by recipient (CA/CMA certificate or self-declaration if below ₹5 lakh).
• Compliance burden remains on supplier to track these documents and justify to GST officers (per Circular 212/2024)​.
• If recipient fails to reverse ITC, the department may disallow the credit note benefit to the supplier.

🧾 Example:

Same original invoice = ₹1,00,000 + 18% GST = ₹1,18,000
Post-supply discount = ₹10,000 (credit note without GST)
➡ No change in outward tax liability for supplier.
➡ Supplier must collect CA certificate from recipient confirming ₹1,800 ITC reversal.

🏁 Conclusion: Which is Better for Supplier?

✅ Internal Use Checklist (Supplier's Team)

✔ Is the discount agreed upon before supply?
✔ Is the discount linked to specific invoice(s)?
✔ Do we want to reduce GST liability (and file amended GSTR-1/3B)?
✔ Is the client willing and able to provide ITC reversal certificate?
✔ Is the total discount (tax portion) under ₹5 lakh?
✔ Are we in a sector where financial notes are the norm?
✔ Is audit risk a concern for this client/period?

✅ Final Answer – What’s Beneficial for Supplier?

If the supplier is okay with reducing tax liability and wants a legally strong position → Issue credit note with GST.

If the supplier prefers to avoid tax adjustments and can manage recipient declarations → Credit note without GST may be operationally easier.

Please note this analysis is for the comliance point of view only. 

"If you have any difficulty understanding GST law or require assistance with litigation or advance ruling matters, please feel free to contact us."