Valuation of Supply under Goods and Services Tax- Discounts

By Registrationwala

5th May 2017

 

The presentation of Goods and Services Tax (GST) has been one of the greatest tax reforms changes in current history. GST is set to introduce a contemporary administration of business compliance in India. GST is a streamlined form of indirect taxation on goods and services by the Indian Central and State governments.

Under GST administration, valuation relies on upon the transaction. Transaction value is the cost really paid (or payable) for the supply of stock/organizations between un-related events (i.e., cost is the sole thought). Discounts will be managed differently under GST. Rebates given already or at the time of supply will be allowed as deduction from transaction value

Discounts under current scenario

Tax

Treatment of discounts

Excise

All discounts given on/before time of sale are allowed

VAT

Different treatment in different states

Service tax

Allowed


Read more Valuation of supply under GST-Discounts

Rebates given previously or at the time of supply will be permitted as subtraction from transaction value. Such rebates must be unmistakably specified on the invoice.

Discounts given after supply will be permitted only if-

Rebates given after supply will be permitted only if-

  • It is declared in the agreement entered into before sale
  • Input tax credit equivalent to the rebate has been reversed by the beneficiary of the supply 
  • It can be clearly tracked to significant tax invoice

For Instance

XYZ is a distributor offering tools like drills, polishers, spades and so forth. XYZ now offers the power drill to a dealer TDR for Rs. 4,000 offering a 1% rebate.  XYZ brings about Rs. 150 packing charges.  

To encourage prompt payment, XYZ offers extra 0.5% rebate if WHL pays in 7 days.

Power Drill

4,000

Packing charges

150

Discount @1% (on sale value)

(40)

Subtotal

4,110

Add: CGST @9%

370

Add: SGST @9%

370

Total

4,850

Rebate of 0.5% is not deducted in the invoice since it will be given at the time of remuneration. But, this rebate was known at the time of supply, and can be connected to this particular invoice, the rebate sum can be lessened from the transaction value.

For this, XYZ Ltd will issue a credit note to TDR for Rs 20 (0.5% of Rs 4,000 = Rs 20+ GST@ 18% on Rs 20 = Rs 3.60), and this must be connected to the relevant tax invoice.

Here, discount has been given after supply. However, it was settled upon at the time of supply and can be followed to the pertinent invoice. So it will be permitted to be deducted from the transaction value.

 When discount is given after supply and it is not known at the time of supply

For Instance

XYZ is facing genuine liquidity issues and demands WHL to pay within 2 days. It offers extra 1% rebate. WHL agrees and disburse.

This rebate was not known at the time of supply, thus it can't be asserted as a deduction from the transaction value for GST calculation. So the invoice will be same as above.

Summarising Discounts –

Discount is given-

Allowed as deduction from transaction value?

On or before time of supply and recorded in tax invoice

Yes

After supply but it was known before/at time of supply and can be traced to relevant invoice

Yes

Given after supply but it was NOT agreed upon before/at time of supply (whether or not traceable to relevant invoice)

NO

Conclusion-

In current regime, indirect taxes paid (like Excise) are incorporated into the cost on which tax/duty (say VAT) is charged.

Nonetheless, GST will be payable on all the taxes other than tax paid as CGST, SGST or IGST. This may hamper the essential target of GST in bringing together charges and evacuating falling impact of taxes.

For instance tax on petroleum commodities: It was determined that the crate of petroleum products, i.e. crude, motor spirit (counting ATF) and HSD will be kept outside GST. Sales Tax could keep on being levied by the States and Center would likewise proceed with its levies. This will influence industries which utilize petroleum products as inputs since they won't get any credit on the taxes paid on inputs.

GST council will take a final view whether Natural Gas ought to be kept outside the GST, after further consultations.

 

Valuation of Supply under Goods and Services Tax- Discounts

2017-05-05