Post-Sale Discounts After 1 November 2026: When a GST Credit Note Cuts Your Tax, and When It Doesn't

From 1 November 2026, a discount given after a sale can reduce GST on that sale without having been agreed before the sale. Notification 03/2026-Central Tax, dated 26 October 2026, brought sections 153 to 155 of the Finance Act, 2026 into force on that date. Section 153 rewrites clause (b) of Section 15(3) of the CGST Act, section 154 amends Section 34, and section 155 amends the refund provisions in Section 54.

For distributors, FMCG suppliers, pharma companies and anyone who runs year-end volume or target schemes, this is the most practical GST change of the year. It replaces a test that was hard to satisfy and harder to prove with one that both parties can document.

Old rule versus new rule

The amended clause allows a discount to be excluded from value where it is given after the supply has been effected, if a credit note has been issued by the supplier for it and the input tax credit attributable to it has been reversed by the recipient, in accordance with Section 34. Section 34(1) has been amended in step, so that a credit note can be issued where such a discount is given, alongside the existing grounds such as excess value, returned goods and deficient supplies.

A worked example

A distributor sells goods worth ₹10,00,000 plus 18% GST of ₹1,80,000 to a retailer in November 2026. In March 2027, the retailer crosses an annual purchase target and the distributor grants a 5% discount of ₹50,000. The scheme was announced in January, after the November sale, and is calculated on total purchases rather than on particular invoices.

• Under the old rule: the discount was not agreed at the time of the November supply and was not linked to specific invoices, so it could not reduce taxable value. The distributor would typically issue a commercial credit note for ₹50,000 with no GST, and output tax on the November invoice would have stayed at ₹1,80,000.
• Under the new rule: the distributor issues a GST credit note for ₹50,000 plus ₹9,000 tax and reports it in GSTR-1. The retailer reverses ₹9,000 of ITC. The distributor's output tax falls by ₹9,000.

Net tax to the government is the same either way, since the retailer's ITC falls by what the distributor's output tax falls by. What changes is that the distributor no longer pays tax on a value it never received, and the retailer's ITC now matches what it actually paid.

How the reversal shows up in returns

The amendment does not prescribe a separate form for evidencing the reversal. In the current return system, the supplier reports the credit note in GSTR-1 (Table 9B for registered recipients), it reaches the recipient through IMS and GSTR-2B, and the recipient's acceptance of the credit note in IMS reduces the ITC available in their GSTR-2B. In practice, that acceptance is the clearest record that the reversal happened. If your buyer rejects the credit note in IMS, check how the portal treats the supplier's liability for that period before you rely on the reduction.

The time limit for the credit note is unchanged. Under Section 34(2), a credit note must be declared no later than 30 November following the end of the financial year in which the supply was made, or the date of filing the annual return, whichever is earlier. For a discount on a supply made in FY 2026-27, that means 30 November 2027 at the latest.

Commercial credit notes are still allowed

Nothing stops a supplier from issuing a commercial or financial credit note without GST. It simply will not reduce output tax, and the recipient keeps its full ITC. That route may still suit discounts where the buyer will not agree to reverse credit, or where the paperwork is not worth the tax difference. What changes is that a commercial credit note is now a choice rather than the only option. Businesses that have routinely issued them for year-end schemes should look again at whether those schemes now belong inside GST.

Open questions

• Supplies made before 1 November 2026. The notification gives the amendment no backward effect. Whether a discount granted after 1 November on a supply made before it can use the new clause is not clearly addressed. Until CBIC clarifies, a conservative position is to apply the new clause to supplies made on or after 1 November 2026.
• Earlier clarifications. CBIC's past circulars on post-sale discounts were written for the old clause, and some may need revisiting.
• Evidence. Since no form records the reversal, agree in writing with the buyer how and when it will be shown, and keep the IMS acceptance or the buyer's confirmation on file.

The other changes from 1 November 2026

Section 155 of the Finance Act, 2026 makes two refund changes from the same date. The 90% provisional refund under Section 54(6), so far used mainly for zero-rated supplies, now extends to refunds of unutilised ITC under an inverted duty structure. And the ₹1,000 minimum refund threshold in Section 54(14) no longer applies to refunds of tax on goods exported with payment of tax, which helps small exporters. The threshold continues to apply to other refund categories.

Reconciliation checklist for discount schemes

1. List every discount scheme running after 1 November 2026 and decide, scheme by scheme, whether it will use GST credit notes or commercial credit notes.
2. For GST credit notes, get the buyer's written agreement to reverse ITC and to accept the credit note in IMS.
3. Each month, match credit notes in your GSTR-1 against the reduction in output tax in GSTR-3B for the same period.
4. Track credit notes the buyer has not yet accepted, and follow up before the period closes.
5. Diary 30 November after each financial year as the last date for credit notes on that year's supplies.