How is GST worked out on a discounted price?
GST is charged on the transaction value: the price actually charged. Section 15(3) of the CGST Act leaves a discount out of that value when it is given before or at the time of the sale and recorded on the invoice.
| Without the discount | With a 20% coupon | |
|---|---|---|
| Price of a shirt, before GST | ₹2,000 | ₹2,000 |
| Discount shown on the invoice | ₹400 | |
| Taxable value | ₹2,000 | ₹1,600 |
| GST at 5% | ₹100 | ₹80 |
The invoice should show the price, the discount and the taxable value that is left, as Rule 46 asks.
Which discounts reduce the taxable value?
| Offer | GST on | Why |
|---|---|---|
| Coupon code at checkout | The discounted price | Given at the time of sale, on the invoice |
| Sale or compare-at price | The sale price | The price charged is the sale price |
| Automatic discount ("10% off above ₹5,000") | The discounted price | CBIC Circular 92/11/2019-GST, para C: staggered discounts shown on the invoice are excluded |
| Order-level discount (₹200 off the cart) | Each line's share after the discount | Shopify spreads it across the lines; each line is taxed on its share |
| Free shipping coupon | Nothing on shipping | No shipping is charged |
A discount can also move a garment into a lower rate. Clothing is 5% up to ₹2,500 a piece after discount and 18% above it, so a ₹2,800 dress sold at ₹2,300 is a 5% sale.
Is the free item in a buy-one-get-one offer taxable?
The "free" item is not a free supply. CBIC's Circular 92/11/2019-GST says a buy-one-get-one offer is "two or more individual supplies where a single price is being charged for the entire supply": in effect two goods for the price of one. Three things follow:
- GST is charged on the price the customer pays, which covers both items.
- You keep the input tax credit on the "free" item, because it was sold, not given away.
- If the two items carry different rates, the circular sends you to section 8: the bundle is a composite or a mixed supply, and a mixed supply is taxed at the higher of the rates. A 5% kurta sold with an 18% "free" bag can end up taxed at 18%. Show both items with their own values, or check the offer with your CA before running it.
On the invoice, list both items, and either split the price between them or show the second at its price with a 100% discount. The taxable value must add up to what the customer paid.
What about a discount given after the sale?
This is the narrow case. Today, a discount given after the sale reduces your taxable value only if it was agreed at or before the sale, is linked to specific invoices, and the buyer reverses the input tax credit on it (section 15(3)(b)). That fits a distributor's year-end volume discount, not a consumer.
A goodwill refund to a consumer after delivery, a price drop matched after purchase, or store credit for a late parcel does not meet those conditions. CBIC allows a "financial or commercial" credit note for them, but the GST already charged stays as it is (Circular 92/11/2019-GST, para D).
The Finance Act 2026 rewrites section 15(3)(b) to drop the prior-agreement condition, keeping the credit note and the buyer's credit reversal. As of 3 Oct 2026 that change has not been brought into force; CBIC lists it as "yet to be notified".
Are gift cards and store credit discounts?
No. They are ways of paying. CBIC's Circular 243/37/2024-GST says a voucher is neither goods nor a service: there is no GST when you sell a gift card, and GST is charged on the goods when the card is used to buy them. A ₹1,000 order paid with a ₹500 gift card is still a ₹1,000 sale for GST.
Common mistakes
- GST on the list price. The tax goes on the price after the discount, if the discount is on the invoice.
- A discount missing from the invoice. Without it on the invoice, the discount does not reduce the taxable value.
- Treating BOGO items as free gifts and reversing credit on them, or leaving them off the invoice.
- A GST credit note for a goodwill gesture, which reduces tax the law does not let you reduce.