Guide to Post-Sale Discount ITC Compliance: Law, Impact, and Best Practices After CBIC’s Withdrawal Circular

Effective 1 October 2025, the CBIC, through Circular No. 253/10/2025-GST, has withdrawn Circular No. 212/6/2024-GST. This removes the earlier mandatory evidence submission procedure for suppliers under Section 15(3)(b)(ii) of the CGST Act, 2017.

• Suppliers: Relief from procedural compliance.

• Recipients: Statutory duty to proportionately reverse ITC on post-sale discounts continues.

• Industry: Streamlined compliance, reduced documentation burden, lower risk of procedural defaults.

Statutory Framework – Section 15(3)(b)(ii) and Legal Interpretation

Section 15(3)(b)(ii), CGST Act:
Where post-invoice discounts are granted, taxable value is reduced only if such discount is established in terms of agreement and linked to relevant invoices, and recipient proportionately reverses ITC.

Interpretation:

• “Price actually paid or payable” = Net consideration after adjusting post-sale discounts.

• “Any discount” includes rebates, volume-linked incentives, promotional rebates, etc.

• ITC reversal is recipient’s statutory duty — automatic, proportionate, and independent of supplier’s evidence.

Withdrawal of Circular 212/6/2024-GST

• Circular 212/6/2024-GST (26 June 2024): Mandated suppliers to furnish compliance evidence for ITC reversals.

• Circular 253/10/2025-GST (1 Oct 2025): Withdrawn under Section 168(1) → uniformity across field formations.

Impact:

• No evidence/proof procedure required from suppliers.

• Recipients retain ITC reversal duty when discounts reduce taxable value.

• Transition: Businesses must retrospectively align credit notes & reversals for June 2024 – Sept 2025.

ITC Reversal – When Required vs Not Required

ITC Reversal Required

✔ Supplier issues tax credit note under Section 34 reducing GST liability.
✔ Discounts linked to specific invoices, agreed pre-supply.
✔ Expired/damaged/destroyed goods where ITC is not eligible (general rule).

ITC Reversal Not Required

✘ Financial / commercial credit notes (payment concessions, no GST reduction).
✘ Discounts already shown in original invoice.
✘ Secondary discounts (manufacturer → dealer, not invoice-linked).

Distinction: Only tax credit notes reduce GST liability → trigger ITC reversal. Purely financial/commercial notes do not.

Supplier Best Practices

• Credit Note Management

  • Issue with clear invoice reference & rationale.

  • Report in GSTR-1 (Credit Notes) promptly.

• Internal Controls

  • Maintain Discount Master Register (invoice, type, approval, communication).

  • Segregate discount approval & credit note issuance functions.

• Trade Communication

  • Notify dealers/distributors: “ITC reversal obligation lies with recipient where GST liability is reduced.”

Recipient Best Practices

• ITC Reversal Calculation

  $$\text{Reversible ITC} = \text{ITC Claimed} \times \frac{\text{Discount Amount}}{\text{Original Invoice Value}}$$

  • Report in GSTR-3B, Table 4B.

• Audit-Readiness

  • Maintain ITC Reversal Register linked to credit notes.

  • Preserve vendor communications, workpapers, reconciliations.

• Retroactive Corrections

  • Identify missed reversals (June 2024–Sept 2025).

  • Correct in earliest permissible GSTR-3B or annual return (GSTR-9C).

Special Case: Expired or Damaged Goods

• Maintain expiry/damage reports, disposal certificates, board resolutions.

• Record write-off with ITC reversal in books.

• Reverse ITC in month of write-off.

Risk Mitigation and Penalty Prevention

• Delayed Credit Notes → Interest under Sec. 50 → Issue promptly.

• Incomplete Documentation → Sec. 73 Notices → Archive digitally.

• Under / Over-reversal → Use ERP-driven workflows.

• Past non-compliance → Forensic audit + consider voluntary disclosure under Sec. 74.

Who Benefits Most

• Suppliers: Freed from compliance-heavy proof requirement.

• Recipients: Clear distinction on reversal vs retention of ITC, preventing unnecessary reversals.

• Industry: Simplified law → lower compliance costs, reduced disputes, ease of doing business.

The withdrawal of Circular 212/6/2024 marks a pro-business move by CBIC — reducing procedural friction while preserving the core principle that ITC must always mirror the actual taxable value.

By aligning internal controls, credit note workflows, and audit documentation, businesses can not only ensure compliance but also reduce exposure to GST litigation.

Reference: Circular No. 253/10/2025–GST, F. No. CBIC-20001/3/2025-GST, dated 1st October 2025.