The Central Board of Indirect Taxes and Customs (CBIC) on Friday issued a fresh clarification on how secondary or post-sale discounts should be treated under GST, addressing doubts for manufacturers, dealers, and distributors. The move is aimed at bringing uniformity in implementation across tax authorities and reducing disputes.
Full ITC allowed despite post-sale discounts
The circular clarified that when a supplier gives a discount after the sale through a financial or commercial credit note (instead of a GST credit note), the buyer does not have to worry about reversing Input Tax Credit (ITC).
CBIC said that a financial or a commercial credit note only adjusts the payment between the supplier and the buyer — it does not change the taxable value or GST amount charged in the original invoice. Since the GST liability on that invoice remains the same, the buyer’s entitlement to ITC also stays the same.
For instance lets say a manufacturer sells goods worth ₹1,00,000 + ₹18,000 GST to a dealer. Later, the manufacturer gives a ₹10,000 discount via a financial credit note. Here the GST remains ₹18,000 and the dealer can still claim full ITC, even though he paid only ₹1,08,000 (₹90,000 + ₹18,000).
Discounts between dealers and manufacturers
When manufacturers give discounts to dealers to help them offer competitive pricing, these are treated as price reductions and not as payments for services. Such discounts, given on a principal-to-principal basis, are not part of “consideration” under GST. Simply put, dealers don’t need to treat these discounts as taxable income for services.
Lets say a dealer buys shoes at ₹1,000 + GST from a manufacturer. Later, the manufacturer gives ₹50 discount per pair to push sales. Here the sale price reduction will not impact the total GST.
Discounts linked to agreements
The circular draws a distinction in cases where a manufacturer has an agreement with the end customer to supply goods at a lower price. If the manufacturer issues a credit note to the dealer to ensure the final customer gets the discounted rate, such a discount will be considered part of the overall “consideration” for supply.
For example, if the manufacturer signs an agreement with a corporate buyer that the shoes must be sold to employees at ₹900, the manufacturer issues credit notes to the dealer to cover the discount. In this case, the discount is linked to the end sale and becomes part of consideration—GST impact may arise.
Separate GST liability for promotional activities
CBIC stated that if dealers merely use the discount to push sales, no extra GST applies. However, if they undertake specific promotional activities like advertising, co-branding, exhibitions, or customer support on behalf of the manufacturer under a clear agreement, then GST will apply on those services separately.
Vivek Baj, partner, Economic Laws Practice called this is a welcome step because earlier, he said. many such discounts were being questioned by tax authorities as hidden payments for promotional services, which created a lot of disputes.
“The clarification, along with the GST Council’s recent proposal to remove the requirement of proving discounts through agreements, will go a long way in reducing unnecessary litigation. Since the clarification is clarificatory in nature, it will also help resolve ongoing cases from the past,” Bajaj added.
The Central Board of Indirect Taxes and Customs (CBIC) has released a series of Central Tax (Rate) Notifications on 17th September 2025 to implement the decisions of the 56th GST Council meeting. These notifications primarily deal with GST rate changes and amendments to earlier notifications. All changes are effective from 22nd September 2025.
Download Links:
Number
Date
Subject
Download
17/2025-Central Tax (Rate)
17-Sep-2025
Seeks to amend Notification No. 3/2017- Central Tax (Rate) dated 28.06.2017.
09/2025 & 10/2025: Supersede the original 2017 rate and exemption notifications, thereby consolidating all GST rates under the new GST 2.0 regime.
11/2025 & 17/2025: Amendments to Notification 3/2017 (concessional rate supplies for exploration and production).
12/2025 & 16/2025: Amendments to Notification 12/2017 (service exemptions).
15/2025: Amends Notification 11/2017 relating to GST rates for services.
13/2025 & 12/2025: Amendments to notifications relating to concessional GST on handicraft items and earlier changes to service rates.
14/2025: Notifies revised GST rate for bricks, in line with the Council’s decision (sand lime bricks reduced to 5%).
GST 2.0. Central Tax (Rate) Notifications
Earlier Notification No. & Date of Issue
Subject
New Notification No.
Date
21/2018-Central Tax (Rate), dt. 26-07-2018
Seeks to prescribe concessional CGST rate on specified handicraft items, to give effect to the recommendations of the GST Council in its 28th meeting held on 21.07.2018
Amended by 13/2025-Central Tax (Rate)
17.09.2025
08/2018-Central Tax (Rate), dt. 25-01-2018
Seeks to amend Notification No.1/2017-CGST (Rate)
Amended by 12/2025-Central Tax (Rate)
17.09.2025
12/2017-Central Tax (Rate), dt. 28-06-2017
To notify the exemptions on supply of services under CGST Act
Amended by 16/2025-Central Tax (Rate)
17.09.2025
11/2017-Central Tax (Rate), dt. 28-06-2017
To notify the rates for supply of services under CGST Act
Amended by 15/2025-Central Tax (Rate)
17.09.2025
03/2017-Central Tax (Rate), dt. 28-06-2017
2.5% concessional CGST rate for supplies to Exploration and Production notified under section 11(1)
Amended by 11/2025-Central Tax (Rate) & 17/2025-Central Tax (Rate)
17.09.2025
02/2017-Central Tax (Rate), dt. 28-06-2017
CGST exempt goods notified under section 11(1)
Superseded by 10/2025-Central Tax (Rate)
17.09.2025
01/2017-Central Tax (Rate), dt. 28-06-2017
CGST Rate Schedule notified under section 9(1)
Superseded by 09/2025-Central Tax (Rate)
17.09.2025
Conclusion
These notifications mark the implementation of GST 2.0, simplifying rate structures and clarifying exemptions. Businesses must now:
Update billing and ERP systems with revised rates effective 22nd September 2025.
Review service contracts and supply chains impacted by amended exemption/rate notifications.
Pay close attention to transitional compliance, especially for goods like bricks, handicraft items, pharma products, and services under concessional/exempt categories.
Together, these changes give legal effect to the recommendations of the 56th GST Council and begin a new phase of GST compliance in India.
The 56th GST Council meeting held on 3rd September 2025 introduced a landmark set of changes that are being popularly referred to as GST 2.0.
To implement these decisions, the Central Government issued a series of Gazette Notifications on 17th September 2025, which come into force from 22nd September 2025. The most important of these are:
The GST Council, in its 56th meeting held on 3rd September 2025, along with subsequent circulars and clarifications, has brought several important changes impacting businesses, service providers, and consumers. The National Pharmaceutical Pricing Authority (NPPA) and the GST Council have issued detailed guidelines on GST rates, exemptions, and compliance procedures. Below is a simplified breakdown of the key points.
1. Medicines & Medical Devices – Revised MRP Implementation
All drug manufacturers/marketers must revise the Maximum Retail Price (MRP) of medicines and devices to reflect revised GST rates.
A revised/supplementary price list (Form V/VI) must be issued to dealers, retailers, State Drug Controllers, and the Government.
Re-labelling or recalling old stock (before 22nd Sept 2025) is not mandatory, provided compliance is ensured at the retailer level.
2. GST on Drones
Previously, drones attracted different GST rates depending on usage (5%, 18%, or 28%).
Now, a uniform 5% GST applies to all drones, irrespective of type or use.
3. GST on Bricks
Under the Special Composition Scheme (from April 2022):
Bricks attract 6% GST without ITC or 12% with ITC (threshold ₹20 lakhs).
No major change in Sept 2025, except:
Sand lime bricks – GST rate reduced from 12% to 5%.
4. Life & Health Insurance Services
Individual life and health insurance policies (including for family) are exempt from GST.
Reinsurance services for such policies are also exempted.
Other inputs (like brokerage/commission) – ITC to be reversed since output is exempt.
5. Hotel Accommodation Services
For rooms costing ≤ ₹7,500/day:
GST is 5% without ITC (mandatory).
Hotels cannot opt for 18% with ITC on such rooms.
6. Beauty & Wellness Services
Attract 5% GST without ITC (mandatory).
Service providers cannot opt for 18% with ITC.
7. Input Tax Credit (ITC) Rules for 5% without ITC Supplies
ITC cannot be taken for goods/services exclusively used for such supplies.
For mixed-use inputs, proportionate ITC reversal is required under Section 17(2) of CGST Act.
8. Job Work Services
Bus body building – 18% with ITC.
Bricks job work – 5% with ITC (where output bricks attract 5%).
9. Multimodal Transportation of Goods
Without air transport: 5% GST with restricted ITC (limited to 5% of value of transport input services).
With air transport involved: 18% GST with full ITC.
10. Local Delivery Services via E-Commerce Operators (ECOs)
Covered under Section 9(5) CGST Act.
GST @18% applicable:
If supplied by unregistered person via ECO → ECO pays GST.
If supplied by registered person via ECO → Supplier pays GST.
ECO-provided delivery services are not treated as GTA (Goods Transport Agency).
11. Leasing & Renting Services
Without operator → taxed at same rate as supply of like goods.
On 12th September 2025, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 251/08/2025-GSTto address long-standing doubts on the GST treatment of secondary or post-sale discounts. The clarification aims to bring uniformity in practice across taxpayers, dealers, and field formations.
Many suppliers issue financial or commercial credit notes after sales, reducing the amount payable by the buyer.
Earlier, there was confusion if the recipient should reverse ITC in such cases.
Clarification:
Supplier issuing a financial/ commercial credit note cannot reduce their original tax liability.
Since the tax charged originally remains unchanged, recipient is not required to reverse ITC.
Example: If goods worth ₹1,00,000 + GST ₹18,000 were sold, and later supplier issues a ₹10,000 commercial credit note, the GST still applies on ₹1,00,000. Buyer keeps full ITC of ₹18,000.
2. Post-Sale Discounts & Consideration
Question: If a manufacturer gives a discount to a dealer, can it be treated as “consideration” for the dealer’s sale to the end customer?
Clarification:
Normally, the manufacturer sells to the dealer, and the dealer sells to the customer — these are two independent principal-to-principal transactions.
A discount given by the manufacturer simply reduces the dealer’s purchase price, helping competitive pricing. It is not an inducement and hence not “consideration”.
Exception: If the manufacturer has a direct agreement with the end customer to sell at a discounted price, and instructs the dealer accordingly, then such a discount is treated as part of the consideration (since it influences the supply to the end consumer).
3. Post-Sale Discounts vs. Promotional Services
Dealers sometimes undertake promotional activities after receiving discounts.
Clarification:
If these activities are incidental (e.g., boosting their own sales), the discount is simply a reduction in sale price, not payment for services.
However, if there is a specific agreement where the dealer provides services like:
Advertising campaigns
Co-branding
Special sales drives
Customer support
Exhibitions or events
Customization/branding services
then these are independent supplies of service and GST will apply on the consideration received for such services.
Practical Impact of This Circular
For Dealers/Distributors
Can continue to avail full ITC even when receiving post-sale discounts via financial/ commercial credit notes.
No ITC reversal required unless linked with a formal agreement involving promotional services.
For Manufacturers
Discounts given for competitive pricing will not attract GST as “consideration”.
But if discount is tied to a specific end-customer agreement or services rendered by dealer, GST may apply.
For Auditors & Tax Professionals
Important to check agreements carefully — whether a discount is just commercial in nature or tied to service obligations.
This distinction affects GST liability significantly.
Conclusion
The new Circular No. 251/08/2025-GST clears a long-pending ambiguity around post-sale discounts.
Normal trade discounts = No GST impact, no ITC reversal.
From 22nd September 2025, compensation cess is removed for most goods under GST 2.0.
Exception: Tobacco and tobacco-related products (cigarettes, pan masala, gutkha, chewing tobacco, bidi) will continue to attract compensation cess until outstanding GST compensation loans and interest are fully repaid.
For consumers, this means many goods may become cheaper. For businesses, it raises issues like unutilised cess credits and treatment of old inventory.
Background — Why Compensation Cess Was Introduced
When GST was implemented in 2017, states were worried about revenue losses. To compensate them, the central government introduced compensation cess on certain goods, mostly luxury and sin products. The cess collected was used to pay states for their revenue shortfall. Over time, loans were also taken against this cess fund.
What the Government Decided
The GST Council simplified slabs under GST 2.0. As part of this, compensation cess is discontinued for most goods from 22nd September 2025.
Only tobacco-related products will continue to attract compensation cess until the loans and interest obligations of the cess account are cleared.
Items Where Compensation Cess is Removed
Compensation cess is removed for almost all goods. Examples include:
Consumer electronics and appliances
Automobiles and vehicles (moved under new GST slabs)
Coal and other raw materials where cess earlier applied
If an item’s new GST rate is notified without cess, it means the cess is no longer applicable.
Items Still Attracting Compensation Cess
Cigarettes
Pan masala
Gutkha
Chewing tobacco (like zarda)
Unmanufactured tobacco and bidi
These will continue under the existing GST + cess structure until the government clears all dues under the compensation cess account.
Practical Issues for Businesses
1. Unutilised Cess Credits
Many businesses, especially automobile dealers, have accumulated cess credit balances. With the cess removed, there’s no future liability to adjust these credits. Unless the government allows refunds or special transition rules, these credits could lapse, causing big financial losses.
2. Old Inventory
Dealers holding stock purchased under old GST + cess rates may not be able to recover the cess already paid on those goods. This could mean a cash-flow loss and may force discounting or write-offs.
3. Consumer Pricing
While tax on many items is reduced, the final benefit depends on whether businesses pass on the reduction. Companies may need to revise MRP using stickers or new packaging, and compliance will be checked by the Legal Metrology Department.
4. Tobacco Exception
Consumers buying cigarettes, pan masala, or tobacco products will not see any relief, as these continue to attract cess until the cess account loans are repaid.
FAQs
Q1 — From which date is compensation cess removed?
22nd September 2025, except for tobacco products.
Q2 — Will prices come down automatically?
Not necessarily. It depends on how quickly businesses update MRP and whether they pass on the tax cut to consumers.
Q3 — What about existing compensation cess credits?
Unclear. Businesses are demanding refunds or transitional provisions. Until notified, credits may remain blocked.
Q4 — Why are tobacco products excluded?
Because large loans and interest payments were taken against cess collections. Until those are repaid, cess will continue on tobacco.
Q5 — What about old stock?
Old stock purchased under higher tax + cess may need MRP revisions through stickers or re-labeling. Businesses must follow official rules for compliance.
What Businesses & Consumers Should Do
Businesses:
Reconcile cess credit balances and plan for possible losses.
Review inventory and pricing strategies.
Watch for official notifications on transition rules.
Communicate MRP changes transparently to customers.
Consumers:
Expect lower prices on many goods after cess removal, but benefits may take time to reflect.
No relief for tobacco-related products.
The removal of compensation cess for most goods is a major simplification of GST and a relief for consumers. However, businesses face short-term challenges due to unutilised credits and old inventory. Until the government issues detailed transition rules, taxpayers should carefully track notifications and plan ahead.
The Goods and Services Tax Network (GSTN) has issued an important advisory dated 9th September 2025, reminding taxpayers about the 3-year time limit for filing GST returns. This advisory is based on amendments made in the Finance Act, 2023 (8 of 2023), effective from 1st October 2023 via Notification No. 28/2023 – Central Tax dated 31st July 2023.
What Does the Rule Say?
As per the amendment, taxpayers will not be allowed to file GST returns after the expiry of 3 years from the due date of furnishing the return.
This restriction applies to the following key sections of the CGST Act:
Section 37 – Outward Supplies (GSTR-1, IFF, etc.)
Section 39 – Payment of liability (GSTR-3B, GSTR-4, GSTR-5, etc.)
Section 44 – Annual Return (GSTR-9, 9C)
Section 52 – TCS Returns (GSTR-8)
Returns Covered
This includes most compliance forms:
GSTR-1, GSTR-1A, IFF
GSTR-3B (Monthly/Quarterly)
GSTR-4, GSTR-5, GSTR-5A
GSTR-6, GSTR-7, GSTR-8
GSTR-9, GSTR-9C
When Will This Apply?
The restriction will be implemented on the GST portal starting from September 2025 tax period.
This means:
Any return whose due date is older than 3 years and is still pending will be barred from filing.
Practically, the system will lock out old returns after the 3-year window.
Illustration: Returns That Will Be Barred from 1st October 2025
GST Form
Latest Tax Period Allowed
Barred From Filing
GSTR-1 / IFF
August 2022
1 Oct 2025
GSTR-1 (Quarterly)
Apr–Jun 2022
1 Oct 2025
GSTR-3B (Monthly)
August 2022
1 Oct 2025
GSTR-3B (Quarterly)
Apr–Jun 2022
1 Oct 2025
GSTR-4
FY 2021–22
1 Oct 2025
GSTR-5
August 2022
1 Oct 2025
GSTR-6
August 2022
1 Oct 2025
GSTR-7
August 2022
1 Oct 2025
GSTR-8
August 2022
1 Oct 2025
GSTR-9 / 9C
FY 2020–21
1 Oct 2025
Example:
If you missed filing GSTR-3B for August 2022, after 1st October 2025, you will never be able to file it.
Similarly, if you have not filed GSTR-9 (Annual Return) for FY 2020-21, you will be permanently barred from doing so.
Why This Matters?
Permanent Closure: Once 3 years are over, you lose the right to file the return.
Compliance Risk: Non-filing may lead to notices, penalties, late fees, and disallowance of ITC.
Reconciliation Issues: Mismatches in GSTR-2A/2B and books of accounts will remain unresolved.
Business Impact: Pending returns may affect loan approvals, audits, and vendor relationships.
Advisory to Taxpayers
Reconcile your records immediately.
File all pending GST returns before the 3-year cut-off.
Don’t wait until the portal locks them permanently in October 2025.
What the Earlier Advisory (7th June 2025) Said
GSTN reminded taxpayers that, as per Finance Act 2023, no GST return can be filed after 3 years from its due date.
The Ministry of Consumer Affairs, Food and Public Distribution has allowed manufacturers, packers, and importers of pre-packaged commodities to revise the retail sale price (MRP) on unsold stock after the recent GST rate changes.
Key Points:
Revised MRP Declaration – Can be done by stamping, stickers, or online printing on the unsold stock manufactured/packed/imported before GST revision.
Conditions:
The original MRP must still be visible, and the revised price cannot overwrite it.
The difference between old and new MRP should only reflect the exact impact of tax increase or reduction (not more).
In case of tax reduction, the revised MRP cannot exceed the reduced tax benefit.
Public Notice Requirement:
Manufacturers/packers/importers must publish at least two newspaper advertisements and circulate notices to dealers and Legal Metrology Directors (both Central & State) regarding the change in prices.
Timeline:
This relaxation is available till 31st December 2025 or until the old stock/packaging material is exhausted, whichever is earlier.
Meaning for Consumers & Businesses:
Businesses can legally update prices on old stock due to GST changes.
Consumers can still see both original and revised MRPs for transparency.
Revised prices must be genuine and only reflect the GST impact (no artificial hike).
The Central Board of Indirect Taxes and Customs (CBIC) has dismissed a viral message circulating on social media that claimed that the new transition benefits under the revised GST rules will be applicable from September 22, 2025.
Social media users are sharing a phoney message purporting to be sent from the chairman of the CBIC. The message claims that new GST transition benefits, including the unutilised cess credit, the ITC of exempt supply, and new price adjustment provisions will take effect on September 22, 2025.
CBIC said that such claims are factually incorrect and misleading.
The CBIC clarified in an official statement, “It has come to notice that an informal message claiming to be from Chairman CBIC is being widely circulated on social media claiming that certain Transition Benefits under GST will be applicable from 22nd September 2025 on issues related to: Unutilised cess credit, ITC of exempted supplies; new price adjustment provisions, etc.
“It is hereby informed that such claims are factually incorrect and misleading.”
Also, CBIC has requested that the general public, members of the trade and industry communities and other stakeholders should only refer to the official Government-issued notifications, circulars, FAQs, etc., for the better understanding of the next-generation reforms under GST.
The GST council meeting last week announced a two-slab structure of the tax- 5% and 18%.
While the council cut GST on many household essentials, the tax was also cut on a number of life-saving drugs.
CBIC is the body that collects GST.
GST council meeting key announcements
The 56th meeting of the GST council, chaired by Union Finance Minister Nirmala Sitharaman, approved the ‘next-gen’ GST reforms on September 3, 2025.
According to a statement from the Press Information Bureau (PIB), “The shift to a two-slab system of 5% and 18%, removing the earlier 12% and 28% rates, will make taxation more transparent and easier to follow.”
The statement also said that at the same time, 40% GST on luxury and sin goods such as pan masala, tobacco, aerated drinks, high-end cars, yachts, and private aircraft ensures fairness and revenue balance.
Along with that, registration and return filing have been simplified, refunds have been made faster, and compliance costs have been reduced, easing the burden on businesses, especially MSMEs and startups, the statement further says.
Important FAQs on GST 2.0 from PIB website
When will the changes in GST rates come into force?
As per the recommendations made in the 56th GST council meeting, the changes in GST rates on services and goods other than cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and beedi will be effective from September 22, 2025. For the specified goods namely, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and beedi, for which the existing rates of GST and compensation cess will continue to apply and the new rates will be implemented at a later date to be notified, based on discharging of entire loan and interest liabilities on account of compensation cess.
Key Highlights of Notifications
Conclusion
Key Issues Addressed in the Circular
Conclusion
What Does the Rule Say?
When Will This Apply?
This means:
Illustration: Returns That Will Be Barred from 1st October 2025
Example:
Why This Matters?
