Discounts on sales do not have a specific HSN (Harmonized System of Nomenclature) code because HSN codes are used to classify goods and services, not financial transactions like discounts. However, the treatment of discounts under GST (Goods and Services Tax) is well-defined.
Treatment
of Discounts under GST
Pre-Sale
Discounts: These are discounts given before or at the
time of sale and are typically mentioned on the invoice. GST is calculated on
the net amount after deducting the discount.
Post-Sale
Discounts: These are discounts given after the sale has
been completed. To claim a reduction in the taxable value for these discounts:
The
discount must be established in terms of an agreement entered into at or before
the time of such supply.
It should
be specifically linked to the relevant invoices.
Input tax
credit (ITC) attributable to the discount must be reversed by the recipient of
the supply.
Example of
Invoice Treatment
Pre-Sale
Discount:
If a
product's price is ₹1,000 and a 10% discount is given, the invoice would show:
Product
Price: ₹1,000
Less:
Discount (10%): ₹100
Taxable
Value: ₹900
GST on ₹900
(assuming 18% GST rate): ₹162
Total
Invoice Value: ₹1,062
Post-Sale
Discount:
If a
discount is given after the sale, a credit note is issued referencing the
original invoice. The taxable value is adjusted accordingly, and GST is
recalculated if applicable.
Key Points
HSN Code: The original HSN code of the goods/services remains the same;
discounts do not change the HSN classification.
Credit
Notes: For post-sale discounts, credit notes
referencing the original HSN codes and invoices are used to adjust the taxable
value.
Compliance: Ensure all discounts are documented and compliant with GST rules to
avoid issues with input tax credit claims and tax calculations.
