GST on Discounts: Trade Discount, Cash Discount and Free Items Explained
Updated: 30 October 2026
Discounts are everywhere in retail: festival offers, wholesale rates, "round off kar do bhaiya", buy one get one. Under GST, some discounts reduce the value on which you pay tax and some do not. Getting this wrong means either paying extra tax from your margin or under-paying and facing a demand later.
The rule comes from Section 15(3) of the CGST Act. This guide explains it in plain words with examples.
The basic rule
- A discount given before or at the time of sale, and shown on the invoice, is reduced from the value. GST is charged on the price after discount.
- A discount given after the sale reduces the value only if it was agreed before the sale (for example in a written scheme or contract), can be linked to specific invoices, and the buyer reverses the matching input tax credit. It is given through a credit note.
- Any other after-sale discount, for example a goodwill discount decided later, does not reduce your GST. It can still be given as a financial credit note, but your tax stays the same.
Worked example: discount on the bill
A shirt is priced at ₹1,000 before GST, at 5% GST. You give a 10% festival discount on the bill. Taxable value = ₹1,000 − ₹100 = ₹900. GST at 5% = ₹45. Bill total = ₹945. You pay GST on ₹900, not on ₹1,000.
If instead you printed the bill at ₹1,000 + ₹50 GST and later returned ₹100 in cash as a "discount", there is no discount on the invoice, so the taxable value stays ₹1,000 unless the post-sale conditions above are met.
Common situations
| Situation | Effect on GST |
|---|---|
| Trade / festival discount on the bill | Reduces taxable value |
| Volume or target discount agreed in advance, given later by credit note | Reduces value if linked to invoices and buyer reverses ITC |
| Cash discount for early payment, not on the bill | Reduces value only if agreed before sale and met the post-sale conditions; otherwise no change |
| Buy one get one / combo offer | Not a free supply: the price paid is the value of both items; split it across them |
| Free gift with no condition | No GST on the gift, but ITC on that gift item must be reversed |
| Round-off of a few rupees | Show it on the bill; tax follows the invoice value |
Scroll sideways to see all columns.
Buy-one-get-one treatment as clarified by CBIC Circular No. 92/11/2019-GST. Specific cases can differ; confirm large schemes with your CA.
Discount before tax or after tax?
On a GST invoice the discount is applied to the price before GST, and GST is then calculated on the reduced amount. Some shops instead reduce the final amount after tax ("₹1,050 ko ₹1,000 kar do"). That is fine too, but then the taxable value must be worked back from the final amount: ₹1,000 ÷ 1.05 = ₹952.38 taxable and ₹47.62 GST. What matters is that the bill shows the correct taxable value and tax.
Discounts in BizBahi
In BizBahi you give a discount per item line while making the bill. The app subtracts the discount from the line amount first and then adds GST on the discounted value, so the taxable value and CGST/SGST or IGST on the bill are already correct. The bill and the GSTR-1 export show the discounted taxable value.
For a discount given after a bill was made (a rate difference or agreed scheme), issue a credit note against the original invoice rather than editing the old bill. See the credit note and sales return guide.
Tips to avoid disputes
- Always show the discount on the bill, item-wise, when you give it at the counter.
- Put schemes for dealers in writing before the sale, with the invoices they apply to.
- Do not give "free" items without a bill. Bill the combo at the combined price, or reverse ITC on true gifts.
Frequently asked questions
Is GST charged before or after discount?
After. For a discount shown on the invoice at the time of sale, GST is calculated on the price after the discount.
Does a cash discount reduce GST?
Only if it is shown on the invoice, or if it was agreed before the sale, linked to invoices and given through a credit note with the buyer reversing ITC. Otherwise GST stays on the original value.
Is GST payable on free items in buy-one-get-one offers?
They are not treated as free supplies. The amount the customer pays is the value of the whole offer, and the tax is worked out on that.
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