Discount first, tax second
GST is charged on the transaction value — what the customer actually pays — not on the price you originally listed. So a discount recorded on the invoice reduces the taxable value, which reduces the tax.
The condition is that the discount must be shown on the invoice and agreed at or before the time of supply. A discount you decide to give three months later, after the invoice is filed, cannot retroactively reduce the tax unless it was linked to the original agreement and you issue a proper credit note.
The formula
GST amount = Net value × rate / 100
Invoice total = Net value + GST amount
Worked example
₹5,000 with 10% off, 18% GST
- List price
- ₹5,000.00
- Discount at 10%
- − ₹500.00
- Taxable value
- ₹4,500.00
- GST at 18%
- ₹810.00
- Invoice total
- ₹5,310.00
Note what happens to your margin: you gave up ₹500 of revenue and ₹90 of tax you would otherwise have collected and passed on. Only the ₹500 comes out of your pocket — but the customer's saving is ₹590, which is a useful thing to point out when negotiating.
Structuring offers cleanly
- Line-item discounts are the safest. Show list price, discount and net value on the invoice.
- Post-sale discounts need a credit note referencing the original invoice, and the buyer must reverse the corresponding input tax credit.
- Free goods offers are more complicated than they look — "buy one get one" is treated as two goods supplied for the price of one, not one free supply.
Frequently asked questions
Is GST calculated before or after discount?
After. GST applies to the value net of any discount shown on the invoice and agreed at or before the time of supply.
What about a discount given after the sale?
It only reduces GST if it was established in an agreement before the supply and can be linked to the specific invoices — and it requires a credit note, with the buyer reversing the matching input tax credit.
Do cash discounts for early payment reduce GST?
Only if the terms were part of the original agreement and are documented. A goodwill discount decided later generally does not.