Post explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
An amendment is on the statute book that will materially loosen post-sale discount treatment — and it is not in force. Until it is notified, every turnover rebate and target discount in the FMCG trade still has to satisfy the old conditions.
Section 15(3) permits exclusion of discounts from value in two cases: (a) discounts given before or at the time of supply and duly recorded in the invoice; and (b) discounts after the supply, where a credit note has been issued by the supplier under section 34 and the ITC attributable to the discount has been reversed by the recipient. The Finance Act, 2026 has substituted section 15(3)(b), removing the requirements that the discount be pre-agreed and specifically linked to the relevant invoices — but "this amendment shall come into force from such date as may be notified" and, as at the date of the ICAI Guide, had not been notified.
What changes, and what has not yet
The current position. A post-supply discount reduces value only where it was pre-agreed at or before the time of supply, is specifically linked to relevant invoices, and the recipient reverses the proportionate ITC.
The substituted provision. Once notified, "the existing requirements that the post-supply discount must be pre-agreed and specifically linked to the relevant invoices will no longer apply. Instead, reduction in the value of supply would be permissible where the supplier issues a credit note under Section 34 and the recipient reverses the proportionate input tax credit attributable to such discount, subject to the prescribed conditions."
The Guide is unambiguous about status: "As on the date of this publication, this amendment has not been notified and is therefore not yet in force." And again: "until the notified effective date, the existing provisions of Section 15(3)(b) continue to govern post-sale discounts."
Which requirement is being dropped matters commercially. The pre-agreement condition is what defeats most ad hoc, mid-quarter market-support schemes; the invoice-linkage condition is what defeats turnover-based rebates computed across thousands of invoices. Both fall away on notification — a substantial liberalisation for the FMCG trade.
The distinction that decides everything: which credit note
"Where a GST credit note is issued under Section 34 and the supplier reduces its output tax liability, the recipient is required to reverse the corresponding input tax credit. However, where a financial or commercial credit note is issued without any reduction in GST liability, the original tax charged on the invoice remains unchanged and the recipient is not required to reverse input tax credit."
Confirmed twice over — "clarified by CBIC in Circular No. 92/11/2019-GST dated 07.03.2019 and further reinforced by Circular No. 251/08/2025-GST dated 12.09.2025."
| GST credit note (s.34) | Financial / commercial credit note | |
|---|---|---|
| Supplier's output tax | Reduced | Unchanged |
| Recipient's ITC | Must be reversed proportionately | No reversal |
| Conditions | Must satisfy s.15(3)(b) | None under GST |
| Reported in | GSTR-1 and IMS | Books only |
The commercial credit note is not a loophole; it is a choice. The supplier gives up the tax reduction in exchange for not imposing a reversal obligation on the dealer — which is often the commercially preferable outcome where the scheme cannot satisfy section 15(3)(b) anyway.
And the classification must be made deliberately, up front. "Clearly classify as either a GST credit note under Section 34 or a financial/commercial credit note. The choice determines the entire compliance chain."
When a discount becomes payment for a service
The other half of Circular No. 251/08/2025-GST draws a line that the FMCG trade crosses constantly:
"ordinary post-sale discounts granted by manufacturers to dealers on a principal-to-principal basis for achieving sales targets, increasing market penetration or supporting competitive pricing do not constitute consideration for any separate supply by the dealer. However, where the dealer undertakes specific promotional or marketing activities for the manufacturer, such as product demonstrations, preferential shelf placement, advertising campaigns or in-store promotions, the consideration received may be treated as consideration for an independent taxable supply of service liable to GST."
The test is whether the dealer did something identifiable for the manufacturer. Selling more is not a service to the supplier — it is the dealer trading on its own account. Running an in-store demo at the manufacturer's instance is.
Hence the Guide's documentation instruction: "Where dealers perform promotional activities, a separate service agreement must exist to document the nature of services and consideration to avoid the discount being re-characterised as a supply of service by the dealer."
Two agreements, not one. A trade scheme circular for the discount; a service agreement for the marketing activity, with its own consideration and its own invoice.
What IMS changed
The Guide records a shift in the compliance mechanism itself:
"With the introduction of the Invoice Management System (IMS), credit notes reported by the supplier will appear in the recipient's IMS dashboard. The recipient must act on these credit notes to ensure ITC reversal is properly recorded — this has become the primary compliance mechanism replacing the CA certificate requirement."
That is a real change of burden. The old regime relied on the supplier obtaining a certificate from the recipient's chartered accountant evidencing the reversal. IMS makes the reversal visible in the system, so the supplier's entitlement is evidenced by the recipient's own action on the dashboard.
And inaction has consequences. Under IMS, an unactioned document may be deemed accepted, so a credit note left untouched can flow into the recipient's GSTR-2B and reduce its credit without a conscious decision. The IMS and section 16(2)(ba) →
The section 34 machinery
Section 34(1): where the taxable value or tax charged in the original invoice exceeds the actual taxable value or tax payable, the supplier may issue a credit note.
Note "may". Issuing a GST credit note is the supplier's option, which is exactly why the commercial credit note route remains open.
And the scheme documentation survives the amendment. "Even though pre-agreement will no longer be mandatory post the Finance Act 2026 amendment, formal trade scheme circulars should continue to be maintained as evidence of the commercial basis of the discount."
The reason is the re-characterisation risk, not the valuation condition. Once pre-agreement is no longer needed for section 15(3)(b), the scheme document's job shifts to showing that the payment was a discount and not consideration for a dealer service — which is where the department's attention now sits.
Key takeaways
- Section 15(3)(a) — in-invoice discounts, recorded in the invoice: excluded from value.
- Section 15(3)(b) — post-supply discounts: currently require pre-agreement, invoice linkage, a section 34 credit note and recipient ITC reversal.
- The Finance Act, 2026 substitutes 15(3)(b), dropping pre-agreement and invoice linkage — but is not yet notified, so the old conditions still apply.
- A GST credit note reduces output tax and forces recipient reversal; a financial credit note does neither.
- Circulars No. 92/11/2019 and 251/08/2025 confirm the distinction.
- Ordinary target and penetration discounts are not consideration for a service; demonstrations, shelf placement and in-store promotions may be.
- Keep two documents: a trade scheme circular, and a separate service agreement where the dealer actually performs activities.
- IMS has replaced the CA certificate as the mechanism evidencing the recipient's reversal.
Read next
- Supreme Paradise: A Post-Sale Discount Is Not in the Dealer's Value
- BOGO: Buy One Get One Free Schemes Under GST
- Post-Supply Discounts Under Section 15(3)(b): The Finance Act 2026 Position
Disclaimer: Positions stated as on 5 September 2026, based on sections 15(2), 15(3) and 34 of the CGST Act, 2017, the Finance Act, 2026 (substitution of section 15(3)(b), not yet notified as at the date of the source Guide) and Circulars No. 92/11/2019-GST dated 7 March 2019 and 251/08/2025-GST dated 12 September 2025, as reproduced in the ICAI GST Sectoral Guide on Fast-Moving Consumer Goods (July 2026).