Advith

Following the Prime Minister’s announcement of next-gen GST reforms on 15th August 2025, the GST Council put forward a set of recommendations aimed at enhancing the ease of doing business across sectors and improving the quality of life for citizens. Acting on these recommendations, the Government issued amendments, while the Central Board of Indirect Taxes and Customs (CBIC) released circulars to provide greater certainty in the law.

One of the important areas that saw focused changes was the treatment of post-supply discounts and credit notes an issue that has often given rise to interpretational and compliance challenges. In this edition of TaxWire, we decode the clarifications, examine their impact, and highlight what businesses need to watch out for in relation to post-supply discounts and credit notes under GST.

Part	Reference	Highlights of Changes
A	Circular 251/08/2025 dated 12^th September 2025	Treatment of post-supply discounts through credit notes, inducements, and promotional arrangements.
B	Rescission of Circular 212/06/2024 dated 26^th June 2024	No CA/CMA certificate needed for ITC reversal proof.
C	Proposed Amendments to Sections 15 & 34 – Yet to be notified	Pre-agreement condition for discount removed and ITC reversal aligned with credit notes

A. Issuance of Circular 251/08/2025 dated 12^th September 2025

Input Tax Credit (ITC) on financial/commercial credit notes: ITC can be claimed without any reversal if a discount is provided via financial/commercial credit notes, since there is no reduction in the original transaction value of the supply.

Type of Credit Note	Action on ITC	Reason
GST Credit Note	Reverse ITC	The original transaction value is reduced
Commercial/Financial Credit Note	Do NOT reverse ITC	The original transaction value remains unchanged

Post-sale discounts vs. consideration for inducement to supply: Generally, manufacturer-to-dealer transactions are principal-to-principal, and discounts given for competitive pricing are not considered as separate consideration. However, if the manufacturer has an agreement with the end customer to supply at a discounted price, enabling the dealer to pass it on, such discounts are treated as consideration for inducement to supply, and GST would be leviable.
Post-sale discounts vs. consideration for promotional activities: When dealers receive discounts, they may engage in promotional activities to boost their sales. Such activities are considered independent and are not treated as consideration for a separate transaction of supply of services. However, if discounts are issued towards specific promotional activities like co-branding, exhibition arrangements, or advertising campaigns, such amounts will qualify as consideration, and GST would be leviable.
Advith Comments:
The circular does not address situations involving transactions between different GSTINs or branches of the same supplier-recipient entity. For example, if a purchase is made from or to a branch’s GSTIN, but the discount or Financial Credit Note (FCN) is issued by the head office GSTIN, the treatment remains unclear.
The circular states that if there is an agreement between the manufacturer and the end customer, a discount given to a dealer can be treated as a subsidy to encourage supply. This would require the dealer to include it in the price charged to the end customer and pay GST on it typically a B2C scenario leading to a break in the ITC chain.
It remains unclear whether deal-funded promotions or brand-promoted schemes can be treated as agreements between the manufacturer and the end customer. This may lead to disputes in interpretation.

B. Rescission of Circular 212/06/2024 dated 26^th June 2024:

Circular 212 has been withdrawn via Circular 253 dated 1^st October 2025. Suppliers no longer need CA/CMA certificates or undertakings to demonstrate that the buyers have reversed ITC and are compliant under Section 15(3)(b)(ii) in case of post-sale discounts.

Advith Comments:

This rescission reduces operational burdens such as additional documentation, certification, and coordination across the supply chain. However, the legal obligation to reverse ITC remains unchanged.

This further signals the Government's intent to strengthen the Invoice Management System (IMS) and mandate freezing of taxes in respect of credit notes flowing from IMS in the coming months. Gearing up for the same is strongly suggested.

Uncertainty remains regarding how taxpayers should prove compliance with Section 15(3)(b) for past periods and whether the rescission operates retrospectively. In the absence of clear instructions to field formations or GST offices regarding proof for ITC reversal on credit notes, different treatments by different officers may likely arise, potentially leading to inconsistent assessments.

C. Amendment to Sections 15 and 34 of the CGST Act (yet to be notified):

Proposed omission of Section 15(3)(b)(i): This removes the requirement of establishing discounts via pre-agreed terms or linking them to specific invoices.
Proposed alignment between Section 15(3)(b) and Section 34: Discounts to be granted via credit notes, and the recipient to reverse ITC on receipt of GST credit note.

Advith Comments:

With the removal of the requirement for a prior agreement for post-supply discounts under Section 15(3)(b), it becomes crucial for businesses to maintain adequate proof that any credit or debit note issued relates directly to an underlying supply. This ensures that the transaction is correctly treated as a post-supply adjustment and not considered as an independent supply for GST purposes.

Conclusion:

The recent amendments and clarifications address several aspects of post-supply discounts and credit notes, easing operational burdens and simplifying documentation requirements. However, certain grey areas remain regarding past ITC reversals, inter-branch transactions, and the treatment of various promotional schemes, which may require further clarifications. Businesses should carefully watch these areas to ensure proper compliance.