Additional Charges discount and Expenses Under GST Regime
How are additional charges and expenses such as discount, packing charges treated in the GST regime?
Pacific computers sold computer worth Rs 4,00,000 to Doon traders They incur packing charges of Rs 5,000 on the computers.They provide a discount of 1% on the price, as part of Diwali scheme Super Cars Ltd agree to provide a further discount of 0.5% if Doon traders makes payment by 31st of the month via net banking. Ravindra Automobiles makes the payment by 31st of the month using net banking.
In the invoice
- Packing charge of Rs 5,000 is included in the transaction value.
Packing charges or any incidental expenses charged before or at the time of supply of goods or services must be included in the transaction value.
- Discount of 1% is deducted from the transaction value.
Discount given before or at the time of supply, and which is recorded in the invoice, can be deducted from the transaction value.
- Discount of 0.5% is not deducted in the invoice. As discount of 0.5% is given after the supply, it will not be shown in the invoice. However, since the discount was known at the time of supply, and can be linked to this specific invoice, the discount amount can be reduced from the transaction value. For this, Super Cars Ltd will issue a credit note to Ravindra Automobiles for Rs 2,360 (0.5% of Rs 4,00,000 = Rs 2,000+ GST@ 18% on Rs 2,000 = Rs 360), and the same must be linked to the relevant tax invoice.
Discount given after supply but agreed upon before or at the time of supply and can be specifically linked to relevant invoices, can be deducted from the transaction value.
Answer: Discount given after supply, and not known at the time of supply.
Let us understand this with an illustration.
Pacific computer to Doon traders for Rs 4,00,000. As per the standing agreement, a credit period of 30 days is allowed for payment. However, due to a severe cash crunch, Pacific computer requests Doon traders to make the payment within 2 days, promising a discount of 2% on doing so. Doon traders makes the payment within 2 days.
In this scenario, since the discount was not known at the time of supply, it cannot be claimed as a deduction from the transaction value for GST calculation.
A summary of the effect of discount on transaction value is given below-
|Type of discount||Effect on transaction value|
|If the discount is given before or at the time of supply, and is recorded in the invoice||Can be claimed as deduction from transaction value|
|If the discount is given after supply, but agreed upon before or at the time of supply, and can be specifically linked to relevant invoices||Can be claimed as deduction from transaction value|
|If the discount is given after supply, and not known at the time of supply||Cannot be claimed as deduction from transaction value|
Effect of various charges/expenses of supply on transaction value is shown below-
|Charges/expenses related to supply||Effect on transaction value|
|Incidental expenses such as commission and packing||Included in transaction value|
|Interest/late fee/penalty charged by supplier for delayed payment||Included in transaction value|
|Subsidies excluding those provided by the Central and State governments||Included in transaction value|
|Any tax other than GST||Included in transaction value|
|Any amount payable by supplier, but incurred by receiver||Included in transaction value|