Billing & GST
GST Post-Sale Discounts: New Credit Note Rule, Nov 2026
From 1 November 2026, post-sale discounts no longer need a prior agreement. What suppliers and buyers must do with credit notes and ITC, with an example.
Facts checked on 2 November 2026.
On 1 November 2026, a change to how GST treats discounts given after a sale came into force. If you are a wholesaler, distributor or manufacturer who gives year-end or volume discounts, it affects the way you issue credit notes. If you are the buyer, it affects your input tax credit. This guide explains the old rule, the new rule, what each side must do, and gives a worked example. It is based on a published summary of the notification, not on the notification text, which we could not open. Please confirm the points with your CA.
The old rule and the new rule
Section 15(3)(b) of the CGST Act decides when a discount reduces the value on which GST is charged. According to TaxGuru's summary of Notification No. 03/2026-Central Tax, dated 26 October 2026, which brings sections 153, 154 and 155 of the Finance Act, 2026 into force from 1 November 2026:
| Before 1 November 2026 | From 1 November 2026 | |
|---|---|---|
| Prior agreement | The discount had to be fixed in an agreement made at or before the supply | Not needed |
| Link to invoices | It had to be linked to specific invoices | Not needed |
| Buyer | Had to reverse the related ITC | Still has to reverse the related ITC |
| Credit note | Needed | Needed, issued under section 34 |
In the summary's words, no prior agreement and no invoice-by-invoice linking are needed any more. A discount given after the supply is excluded from value if the supplier issues a credit note under section 34 and the recipient reverses the related input tax credit.
What the supplier does
- Issue a GST credit note under section 34 for the discount. Show the taxable value and the tax being reduced.
- Tell your dealers that they must reverse the matching ITC.
- Keep the scheme circular or letter on file. The summary notes that an officer may still ask why the discount was given.
- Report the credit note in your GST return for the period in which you issue it. Your CA will confirm the table.
The summary adds a warning. A commercial credit note without GST is still possible, but it will not reduce your tax. If you give the discount without a GST credit note, your GST is still charged on the full value.
What the buyer does
Accept the credit note and reverse the matching ITC promptly. If you do not, the supplier's reduction in tax can be questioned. On the GST portal, credit notes also appear in the Invoice Management System. A TaxGuru article on IMS says that for specified records, including credit notes, the pending option lasts one following tax period, and that the recipient can declare the amount of ITC to be reduced, so the reversal reflects the credit actually taken. It also says IMS actions may be taken until the relevant GSTR-3B is filed.
A worked example
A wholesaler in Dadar sells goods worth Rs 1,00,000 to a retailer in Mumbai. GST is 18%, split into CGST 9% and SGST 9%. This is an example, not a real invoice.
| Step | Taxable value (Rs) | GST at 18% (Rs) |
|---|---|---|
| Original invoice | 1,00,000 | 18,000 (9,000 + 9,000) |
| Year-end discount, agreed verbally in December | 5,000 | 900 (450 + 450) |
| Credit note raised by the wholesaler | 5,000 | 900 |
| Net value of the supply | 95,000 | 17,100 |
| Retailer reverses ITC | 900 |
The credit note totals Rs 5,900 including tax. Before the change, a discount agreed afterwards and not linked to the invoice would not have lowered the value, so the wholesaler would have paid GST on the full Rs 1,00,000. Now, if the credit note is issued and the retailer reverses Rs 900, the taxable value goes down to Rs 95,000.
The year-end deadline
The existing time limit in section 34(2) still applies. The credit note must be declared by 30 November following the end of the financial year, or the date of filing the annual return, whichever is earlier. That means discounts for FY 2026-27 should have credit notes before 30 November 2027, and sooner if you file the annual return earlier. Our source states that the earlier-of test is the operative one. Check the exact limit with your CA.
What did not change
- The rule has no retrospective effect. Earlier transactions are judged under the law as it stood then.
- The credit note still has to be a real GST document with the right tax split.
- The buyer's duty to reverse ITC remains.
- The same notification brings other changes about refunds, such as a 90% provisional refund for inverted duty refunds under section 54(3), and no Rs 1,000 minimum for refunds on goods exported. They do not affect a typical discount.
A checklist for your accounting software
- Can you raise a credit note against a party, with the original invoice number and a clear tax split?
- Does the credit note lower the party ledger, so the dues are right?
- Can you pull credit notes into your GSTR-1 data for the period?
- Can the buyer see the credit note and match it against the purchase?
- Is there a date warning, or at least a report, so year-end credit notes are not forgotten?
BecozAI has credit notes in Accounting & GST, along with party ledgers and dues, and builds GSTR-1 and GSTR-3B data as downloads you upload on the GST portal. It also has GSTR-2B matching. The IMS actions of accepting, rejecting or holding an invoice are taken on the GST portal and not in BecozAI. We have not built a year-end credit note reminder. For a Maharashtra month-end view, see our accounting page for Mumbai and the product page.
This guide is information, not advice. Please confirm the points in it with your CA.