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GST on Incentives, Discounts and Schemes Earned by Dealers SAC Code, Taxability, and Rate

In this article, we will discuss all about incentives, discounts and schemes earned by dealers and SAC code and taxability. Incentives, discounts and schemes are integral part of business. It is very common to give trade discount, post-sale discount, and cash discount in business. Generally business discount is offered to increase the sales and a cash discount given to dealers for recover such payment early.

If certain targets are achieved, discounts are given after sales and promotional schemes are run by distributors. However, the taxability of these Incentives, Discounts and Schemes under GST are complex.

What are Incentive, Discount and Schemes?

Incentive –
Rewards or bonuses are provided by the supplier to dealers to encourage them to achieve specific targets. For example, if during the month a dealer sells goods worth Rs. 10,00,000, then a Rs. 50,000 bonus is given to the dealer or Rs. 50,000 is reduced in the next purchase.

Discount –
Normally, a discount is given at the time of sale; such a discount is called a trade discount. This discount is offered to every customer, but after the sale, to recover payment, the company offers a cash discount. For example, after the sale, if payment is made within 30 days, an additional 2% discount is given.

Schemes –
Suppliers offer schemes to motivate dealers to increase sales. For example, 'Buy One, Get One Free' offers and coupons are provided. These coupons can be used for future payments.

Taxability of Incentives, Discounts and Schemes

• As per Section 15(3) of CGST Act 2017 if any discount is given before or at the time of sale and such discount is recorded in an invoice, then in that case the discount is not included in value of supply.

• If after the sale any discount is given and such discount is as per terms of agreement and linked to relevant invoice and 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 then in that case discount is not included in value of supply.

• If the discount is given after sale and not known at the time of supply then such discount is included in value of supply.

GST treatment in case of Incentive

Case 1 – If Credit note issued within the time limit as per CGST Act 2017.

Then in such case the supplier will issue a credit note and the recipient (buyer) will reverse the Input Tax credit (ITC).

Case-2 If Supplier issues Financial Credit Note -

In that case if the supplier issued a financial credit note without GST adjustment, then there is no need for GST reversal to the recipient (buyer).

FAQs on Incentives, Discounts and Schemes Earned by Dealers

Q.1 What is the HSN/SAC code of Incentive, Discount and Schemes?
Ans. HSN/SAC codes depend on the nature of the goods or services. Discounts fall under the main category of goods or services being sold.

• In the case of goods - Same HSN code as the main product.
• In the case of services- Same SAC code as the main service.

Q.2 Is discount included in the value of supply?
Ans. If any discount is given before or at the time of sale and such discount is recorded in the invoice then in that case the discount is not included in value of supply.

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