A S BANKA ADVISORS

If your company pays distributors, dealers or other business customers a target-based or year-end discount after the invoice has gone out, the GST value of those sales depends on whether that discount can be kept out of the taxable value. The test for that changes on 1 November 2026.

Section 153 of the Finance Act 2026 substitutes clause (b) of section 15(3) of the Central Goods and Services Tax Act, 2017, and section 154 amends section 34(1). The Finance Act left the date for these sections to be appointed by the Central Government (section 1(2)(b)). CBIC Notification No. 03/2026-Central Tax, dated 26 October 2026, appoints 1 November 2026 as the date on which sections 153 to 155 come into force.

The test until 31 October 2026

Section 15(3) keeps two kinds of discount out of the value of supply. Clause (a), which does not change, covers a discount given before or at the time of supply and duly recorded in the invoice. Clause (b) covers a discount given after the supply. Until 31 October 2026 it applied only if two conditions were both met: the discount was established in terms of an agreement entered into at or before the time of supply and specifically linked to relevant invoices, and the input tax credit attributable to the discount, on the basis of a document issued by the supplier, was reversed by the recipient.

A discount agreed only after the supply, or one that could not be tied to specific invoices, did not meet the first condition, even where the recipient reversed the credit.

The test from 1 November 2026

The substituted clause (b) covers a discount given after the supply has been effected “if for such discount, a credit note has been issued by the supplier and input tax credit as is attributable to such discount has been reversed by the recipient of the supply, in accordance with the provisions of section 34.”

For a sales or finance team, the question moves from what the contract said at the time of supply to how the discount is documented and reversed afterwards.

Section 34 now carries the discount credit note

Section 34(1) lists when a supplier may issue a credit note: where the taxable value or tax charged in the invoice exceeds what is payable, where goods are returned, or where goods or services are found to be deficient. Section 154 adds a fourth case: “or where a discount referred to in clause (b) of sub-section (3) of section 15 is given”. The supplier may issue one or more credit notes for supplies made in a financial year.

Two parts of section 34 that do not change now apply to these discount credit notes:

• Time limit (section 34(2)). The credit note is declared in the return for the month in which it is issued, but not later than 30 November following the end of the financial year in which the supply was made, or the date of furnishing the relevant annual return, whichever is earlier.
• Recipient reversal (proviso to section 34(2), in force from 1 October 2025). No reduction in the supplier’s output tax liability is permitted if the input tax credit attributable to the credit note, if availed, has not been reversed by the recipient, where the recipient is a registered person; in other cases, if the incidence of tax on the supply has been passed on to any other person.

Read together, the recipient’s reversal sits at the centre of both provisions: section 15(3)(b) for the value of the supply, and the proviso to section 34(2) for the supplier’s output tax reduction.

Discounts that straddle 1 November 2026

Neither section 153 of the Finance Act 2026 nor Notification No. 03/2026-Central Tax contains a transition provision for discounts relating to supplies made before 1 November 2026. The notification only appoints the date. Where a discount scheme covers supplies on both sides of that date, examine the position on the facts with the statutory text in hand.

Your checklist

1. Route post-supply discounts through GST credit notes under section 34(1) for supplies covered by the new clause.
2. Build confirmation of each registered recipient’s input tax credit reversal into your credit note process, and keep the record.
3. Diarise the section 34(2) cut-off: 30 November after the financial year of supply, or the annual return date if earlier.
4. Review dealer, distributor and customer contracts and discount schemes that were drafted around the old agreement at or before supply condition.
5. Align internal approvals and documents with the clause in force on the date the discount is given.

The carousel sets out the old and new test, the section 34 conditions and the key dates card by card: Download the full carousel PDF.

Source: Central Board of Indirect Taxes and Customs, Notification No. 03/2026-Central Tax, 26 October 2026, taxinformation.cbic.gov.in. Source: The Finance Act, 2026 (4 of 2026), sections 1(2)(b), 153 and 154, Gazette of India Extraordinary, 30 March 2026, egazette.gov.in. Source: Central Goods and Services Tax Act, 2017, sections 15 and 34, taxinformation.cbic.gov.in.

Need help navigating this? Book a quick call: talk to A S Banka Advisors Private Limited about your discount schemes and credit notes.