Post-Supply Discounts: The New Section 15(3)(b) Test

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.

Ask any distributor what their worst GST exposure is, and a surprising number will say year-end rebates. Not because the rebate is wrong, but because s.15(3)(b) demanded a piece of paperwork that commercial life rarely produces: a written agreement, signed at or before the supply, fixing a discount that only becomes calculable months later.

Section 153 of the Finance Act, 2026 substitutes the clause and removes that requirement.

The substituted s.15(3)(b) allows a post-supply discount out of taxable value if the supplier has issued a credit note and the recipient has reversed the attributable input tax credit, in accordance with s.34. The pre-agreement condition and the specific invoice linkage condition are gone. Section 154 amends s.34(1) so a discount under s.15(3)(b) is an express ground for a credit note. Both changes start from a date to be notified — until then, the old two-condition test still governs.

The clause as it stood

Section 15(3) excludes two kinds of discount from value:

(a) a discount given before or at the time of supply, if duly recorded in the invoice; and

(b) a discount given 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."

Limb (i) carried two conditions, and both broke on ordinary commerce:

• Timing. A slab-based annual incentive is agreed in principle in April, but the entitlement crystallises only in March, once volumes are known. Departments read "established in terms of an agreement entered into at or before the time of such supply" strictly, and rejected discounts where the operative document post-dated the invoices.
• Linkage. "Specifically linked to relevant invoices" is near-impossible where a rebate is computed on a year's aggregate turnover across thousands of invoices. Credit notes issued at a summary level failed the test.

The consequence of failing either limb was not that the credit note was invalid — it was that the discount could not be reduced from taxable value. The supplier had already passed on the money and was still liable for GST on the gross.

What the substituted clause says

"(b) after the supply has been effected, if for such discount, a credit note has been issued by the supplier and input tax credit as is attributable to such discount has been reversed by the recipient of the supply, in accordance with the provisions of section 34."

Two conditions, both mechanical:

1. A credit note has been issued by the supplier, under s.34.
2. The recipient has reversed the ITC attributable to that discount.

Nothing about when the discount was agreed. Nothing about invoice-level linkage.

Why section 34 had to be amended too

Section 34(1) lists when a credit note may be issued: the taxable value or tax in the invoice exceeds what is payable, the goods are returned, or the goods or services are found to be deficient.

A negotiated volume rebate is none of those. The invoice was correct when raised; nothing came back; nothing was deficient. So a discount that s.15 allowed had no clean statutory basis in s.34 — and s.15(3)(b) itself now points to s.34.

Section 154 of the Finance Act, 2026 inserts into s.34(1), after "both supplied are found to be deficient", the words "or where a discount referred to in clause (b) of sub-section (3) of section 15 is given".

The circularity closes: s.15(3)(b) requires a s.34 credit note, and s.34(1) now expressly permits one for exactly that discount.

The recipient's reversal is still the hinge

What survives untouched is the condition that actually protects revenue: the recipient must reverse the ITC attributable to the discount.

That is a condition on someone else's conduct. The supplier gets the value reduction only if the customer does something in their own return. Practically:

• the credit note must reach the recipient and be acted on;
• the reversal shows up in the recipient's GSTR-3B Table 4(B);
• through the Invoice Management System, a credit note the recipient rejects or ignores will not produce the reversal, and the supplier's reduction fails.

Distributors and FMCG suppliers running large rebate programmes should expect the operational burden to move from drafting agreements in advance to chasing reversals afterwards. That is a better problem, but it is not no problem. Invoice Management System and credit notes →

Section 34(2) time limit is unchanged

The amendment does not touch s.34(2), which still requires the credit note to be declared in the return for the month in which it is issued and no later than 30 November following the end of the financial year in which the supply was made, or the date of the annual return, whichever is earlier.

So a rebate for FY 2026-27 must be credit-noted and declared by 30 November 2027. The relaxation is about what you must prove, not how long you have.

What to do before the notification

Until the Government notifies sections 153 and 154, the old test applies in full. Practical steps:

• Keep issuing framework rebate agreements at the start of the year, with the slab mechanics spelled out. Cheap insurance, and still required today.
• Continue whatever invoice-linkage documentation you have — a reconciliation mapping the rebate to the underlying invoice set.
• Keep written confirmation of the recipient's reversal. This condition survives the amendment, so nothing here is wasted effort.
• Do not start issuing unsupported summary credit notes on the strength of an unnotified amendment.

Key takeaways

• The substituted s.15(3)(b) needs only a credit note plus the recipient's ITC reversal.
• The pre-agreement and specific invoice linkage conditions are removed.
• s.34(1) is amended to make a s.15(3)(b) discount an express ground for a credit note.
• Not yet in force — both start on a date to be notified.
• The s.34(2) 30 November deadline is unchanged.
• The recipient's reversal remains the operative condition, and IMS is where it now plays out.

Read next

• Finance Act 2026: Every GST Amendment, and When Each One Starts
• Discounts Under GST: When They Reduce Taxable Value
• Debit Note and Credit Note Under GST
• Invoice Management System: The New Compliance Layer

Disclaimer: Positions stated as on 5 September 2026, based on the Finance Act, 2026 and the ICAI Bare Law, 12th edition. Sections 153 and 154 are not yet notified; check cbic.gov.in for the commencement notification.