How does GST on discount work for Indian retailers? If the discount is shown on the bill at the time of sale, you charge GST only on the price after the discount.
A discount given later is harder. It only lowers your GST if it was agreed at or before the sale and is linked to the bill. The buyer must also reverse the input tax credit for it, which means giving back the GST credit they claimed on the purchase.
For small Indian business owners, festive offers come in more shapes than a plain discount, though. Buy one get one, free gifts and year-end dealer discounts each follow their own rule. Getting one wrong can cost you GST or credit you did not need to lose.
This post sets out the GST rule for each of 6 popular festive offer types, from a discount on the bill to returns after Diwali. Each rule comes from the Central Board of Indirect Taxes and Customs (CBIC).
Key Takeaways
- A discount printed on the bill cuts the GST too. The same discount given later often does not.
- Buy one get one is not a free item. It is two items sold for one price, so both carry GST in that price.
- Gifts given with no purchase block the input tax credit on them. Plan that cost in.
GST on Discount Rules for 6 Popular Festive Offer Types
The GST on discount rule changes with the type of offer. This table sets out the rule for each of the 6 popular festive offer types.
| Festive Offer Type | Value GST Is Charged On | Effect on Input Tax Credit |
|---|---|---|
| Discount on the bill | The price after the discount | Seller keeps it in full |
| Buy more, save more | The price after the slab discount | Seller keeps it in full |
| Buy one get one | The single price for both items | Seller keeps it on both items |
| Gift with no purchase | Usually no GST on the gift | Seller cannot claim it |
| Dealer discount after the sale | Full price, unless three conditions are met (rule 5) | Buyer must reverse it for the discount to count |
| Return after Diwali | Can be lowered through a credit note | Credit note must link to the original bill |
Each rule below explains one row of the table, with the CBIC source behind it.
Rule 1: A discount printed on the bill
The rule: a discount printed on the bill comes off the value before GST.
CBIC’s guide to valuation under GST says discounts recorded in the invoice are left out of the taxable value. So you charge GST on the price after the discount.
Here is how that works on one bill (an example). An item listed at ₹2,000 has a 20% Diwali discount, and it is taxed at 18%.
- Price after discount: ₹2,000 − ₹400 = ₹1,600
- GST at 18%: ₹1,600 × 0.18 = ₹288
- Bill total: ₹1,888
The discount has to be on the invoice itself. The rule covers discounts recorded in the invoice, so print the festive discount on every bill, not only on the poster.
Rule 2: Buy more, save more
The rule: a slab discount on the invoice is treated like any other bill discount.
Slab offers like “10% off above ₹5,000, 20% off above ₹10,000” work the same way, as long as the discount is on the invoice. CBIC’s Circular 92/11/2019 on sales promotion schemes uses exactly this example and says such discounts are left out of the value of supply.
A saree shop in Vastrapur, Ahmedabad, running this offer through Dhanteras charges GST on each bill after its slab discount (an example). The shop also keeps its full input tax credit on the goods sold this way.
Rule 3: Buy one get one free
The rule: buy one get one (BOGO) is two items sold for one price, not a free item.
CBIC’s Circular 92/11/2019 calls it “supplying two goods for the price of one”. Both items are sold for the single price you charge.
So you charge GST on that one price, and you keep input tax credit on both items.
If both items are the same product, they carry the same rate. If they differ, the rate depends on whether the pair is a composite or a mixed supply. A composite supply is items that naturally go together, with one main item. A mixed supply is separate items sold together for one price.
A mixed supply takes the highest rate of the items in it. A composite supply takes the rate of its main item, as CBIC’s guide to composite and mixed supply explains.
Rule 4: Free gifts given with no purchase
The rule: a gift given with no purchase usually carries no GST, but you cannot claim input tax credit on it.
A Diwali hamper for a loyal customer is a typical case. Circular 92/11/2019 says goods given free, with nothing paid, are not a supply. A few special cases are taxed anyway, and the GST law lists them in Schedule I.
The catch is the input tax credit. The same circular says you cannot claim input tax credit on goods you give away as gifts or free samples. An electronics store in Kharadi buying ₹48,600 of gift hampers for its regulars bears the GST on them as a cost (an example).
Rule 5: Year-end discounts to dealers
The rule: a discount given after the sale lowers GST only if three conditions are met.
Distributors often give stockists a volume discount after the season, through a credit note. A distributor in Pimpri settling its Diwali scheme in December is a typical case (an example).
The GST law sets three conditions for that discount to lower the GST, as CBIC’s Circular 212/6/2024 on post-sale discounts lists them:
- The discount was agreed in an agreement made at or before the sale.
- It is linked to the specific invoices.
- The buyer has reversed the input tax credit for it.
The buyer’s reversal needs proof. The circular asks for a certificate from the buyer’s chartered accountant or cost accountant. If the GST in your credit notes to one buyer in a financial year is ₹5,00,000 or less, a written undertaking from the buyer is enough.
If the conditions are not met, you can still give the discount as a commercial credit note. That lowers what the buyer owes you, but not the GST you already paid.
Rule 6: Returns and refunds after Diwali
The rule: a return lowers the sale and its GST only through a credit note linked to the original bill.
Goods bought for Diwali often come back in the days after. For each return, the GST law lets you issue a credit note against the original bill.
Take a mobile accessories shop in Baner, Pune, that takes back 14 items in November 2026 (an example). It issues credit notes for the returned items, each linked to the original bill. If you issue E-invoices to business buyers, the credit note for those sales needs one too.
Our credit note template keeps them in one register.
What I could recommend from my end. Add each festive offer as a capped discount rule in the retail POS before the season. Every bill then shows the discount before the tax. After Diwali, the sales report and discount log show which offers sold and what they cost.
Which GST on Discount Rule Fits Your Shop’s Offer?
The GST on discount rule you follow starts with one question: was the discount known and shown when you made the sale? This section turns the discount rules (1, 2 and 5) into one decision. BOGO, gifts and returns follow their own rules above.
Was the discount on the bill at the time of sale? Yes GST is charged on the price after the discount. No Given after the sale? It lowers GST only if all 3 hold: 1. Agreed at or before the sale 2. Linked to the invoice 3. Buyer reverses the credit All 3 met Discount lowers GST Any one missing Credit note, GST stays Whether a festive discount lowers your GST depends on when it was given.Most shop-counter offers land in the Yes box of that chart, because the discount prints on the bill. Dealer and distributor schemes usually land in the No box, because the final discount is only known at the season’s end.
Common GST on Discount Mistakes Shop Owners Make
GST mistakes with festive offers usually come from billing an offer the wrong way. Here are four common ones.
- Showing BOGO as a free item at zero value. Circular 92/11/2019 treats it as two items sold for one price, and GST is charged on that price.
- Claiming input tax credit on giveaways. Gifts given with no purchase block that credit.
- Giving a post-sale discount with no agreement. Without one made at or before the sale, the credit note does not lower your GST.
- Leaving returns off the books. A return with no credit note leaves your sales and GST overstated.
Where Does Petpooja Invoice Fit for Festive Billing?
Petpooja Invoice handles the billing side of festive offers. This section covers the parts that matter for GST on discount.
Its GST invoicing prints each bill with the tax on the final price. Its offers and discount rules carry a cap, and every discount given is logged. For goods that come back after Diwali, you raise a credit note and the stock adjusts by itself.
Its business intelligence reports show sales by category and product, so you can track what the festive offers actually sold.
Restaurants follow their own GST rules on bills. Our GST billing for restaurants guide covers that side. Our list of Diwali offers for restaurants has offer ideas to bill this way.
Conclusion
The GST on discount rules come down to timing.
Show the discount on the bill at the time of sale, and GST is charged only on the lower price. Give it later, and it lowers GST only if three things hold. It was agreed at or before the sale, it is linked to the invoice, and the buyer reverses the input tax credit for it.
Check each festive offer against that before Dhanteras. Buy one get one is one price for two items, and free gifts with no purchase lose their input tax credit.
The festive offers that cause the least GST trouble are the ones that print on the bill. Petpooja Invoice puts the price, the discount and the tax on the same invoice.
Frequently Asked Questions
Does a festive discount change the GST rate of an item?
No. The discount changes the price GST is charged on, not the rate. The rate still comes from the item’s Harmonised System of Nomenclature (HSN) code. Our GST invoice template has a column for it.
Does a cashback offer lower GST?
CBIC’s sales promotion circular does not deal with cashback. Check with your accountant how your cashback is set up before you treat it as a discount.
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Ashwiniba Vaghela is Senior Executive – Content at Petpooja and the editorial reviewer, which means she also helps in reviewing blogs. She writes the explainers and comparisons people read before they know what to search for: what a category actually is, what it costs to keep doing the job by hand, and which differences between two tools matter once you are running a business rather than evaluating one. Much of her work is built on Petpooja's own numbers rather than borrowed industry reports, and with 1,50,000+ businesses, the patterns in that data answer questions no public survey covers. If you are trying to understand something before you commit money to it, Ashwini is writing for you, and if you have read anything else on this blog, she has already checked it.
