Section 15(3)(b) and Post-Supply Discounts: Conditions, ITC and the Finance Act 2026 Change

Every rupee of scheme money that flows back through an Indian channel eventually hits one question: can this discount reduce the GST already charged, or must it settle commercially with the tax untouched? Section 15(3)(b) of the CGST Act is where that question is answered — and the Finance Act 2026 has rewritten it, with one critical catch: the rewrite is enacted but not yet in force.

Why Section 15(3)(b) matters to channel finance

Section 15 fixes the value on which GST is paid — the transaction value. Sub-section (3) then says when a discount can be excluded from that value. For anyone running trade discounts and dealer incentives, this is the fork in the road:

• Discount qualifies under Section 15(3) → the supplier can issue a tax credit note under Section 34, reduce output tax, and the recipient reverses proportionate ITC.
• Discount does not qualify → the supplier settles through a financial / commercial credit note: the money moves, but the taxable value and GST stay exactly as invoiced.

The second route is not a failure state — per CBIC Circular 251/08/2025 it requires no ITC reversal by the recipient and is the workhorse of most scheme settlement. But the choice between the routes is worth the GST component of every credit note, and Section 15(3)(b) is the gate. The full instrument-level comparison is in financial vs. tax credit notes under GST.

The current law: Section 15(3) dissected

Under the text in force today, the value of a supply does not include a discount:

(a) Before or at the time of supply — if the discount is duly recorded in the invoice for that supply. A trade discount shown on the invoice face never enters taxable value. No further conditions.

(b) After the supply has been effected — only if both limbs are satisfied:

1. Pre-agreement + invoice linkage — the discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
2. ITC reversal — input tax credit attributable to the discount, on the basis of the document issued by the supplier, has been reversed by the recipient.

Each limb does real work:

• Pre-agreement. The scheme must exist — in an agreement, circular or communicated terms — before or at the supply it discounts. A scheme invented after the goods shipped cannot retroactively qualify.
• Invoice linkage. The discount must map to specific invoices, not float as a lump sum over a quarter's purchases. Proving which invoices a ₹18 lakh quarterly payout attaches to is the reconciliation problem that ITC reversal on post-sale discounts turns on.
• ITC reversal. The recipient must reverse the credit attributable to the discount — otherwise the supplier's output tax falls while the recipient keeps full ITC, and the government funds the scheme. Circular 253/10/2025 withdrew the CA-certificate evidence mechanism of Circular 212/6/2024, but the recipient's reversal obligation itself survives wherever Section 15(3)(b) is invoked.

A worked example: the scheme agreed after dispatch

A paints company dispatches ₹50 lakh of stock to a distributor in April (GST 18%, ₹9 lakh, distributor claims full ITC). In June, sales announces a 4% support scheme on April–May billing — ₹2 lakh to this distributor.

Test it against 15(3)(b): the ITC-reversal limb could be engineered, but the first limb fails outright — the scheme was born in June, after the supplies it discounts. No agreement existed at or before the time of supply. The ₹2 lakh therefore cannot be excluded from taxable value, and a Section 34 tax credit note reducing GST is off the table.

The correct settlement: a financial credit note for ₹2 lakh. GST on the original invoices stands at ₹9 lakh, the distributor's ITC is untouched (Circular 251 confirms no reversal), and the discount is absorbed commercially. The books-side treatment is a straightforward revenue reduction — what the business loses is only the GST relief it never qualified for.

Finance Act 2026: what changes, what stays

The 56th GST Council (3 September 2025) recommended dropping the two conditions that generate most 15(3)(b) disputes. The Finance Act 2026 (Act No. 4 of 2026, assented 30 March 2026) enacts that: the amended Section 15(3)(b) requires only that a credit note has been issued by the supplier and the ITC attributable to the discount has been reversed by the recipient. A companion amendment writes Section 15(3)(b) discounts into Section 34(1) as an express ground for issuing a tax credit note.

The catch that this entire article turns on: the GST amendments (sections 153–155 of the Finance Act 2026) come into force on a date to be notified — and as of early July 2026, no commencement notification has been issued. The table below is a comparison of current law against enacted-but-pending law, not a description of two live regimes.

Element	Current law (in force today)	After the Finance Act 2026 amendment (once notified)
Pre-supply agreement	Required — discount must be established in an agreement entered into at or before the time of supply	Dropped — no pre-agreement condition in the amended text
Invoice linkage	Required — discount must be specifically linked to relevant invoices	Dropped as a statutory condition (credit-note documentation still maps to supplies in practice)
ITC reversal by recipient	Required — limb (ii) of 15(3)(b)	Stays — reversal of ITC attributable to the discount remains a condition
Section 34 tax credit note	The mechanism where 15(3)(b) is satisfied	Stays, made explicit — Section 34(1) amended to expressly cover 15(3)(b) discounts, pulling them under the Section 34 time limit (30 November after the financial year, or the annual return, whichever is earlier — see credit note time limits)
Financial / commercial CN route	Available for non-qualifying discounts; no ITC reversal (Circular 251)	Stays — unaffected; remains the route where the supplier chooses not to reduce GST
Evidence expectations	Scheme documents, invoice mapping, reversal proof	Stay in substance — the statutory conditions relax, but credit notes, reversal workings and scheme records remain what an officer asks for

What the amendment really does is move the qualifying test from when the scheme was agreed to how it is settled and whether the recipient reverses credit. What it does not do — anywhere — is touch the ITC-reversal condition or the commercial credit-note alternative.

Documentation best practices under current law

Until the notification issues, the pre-agreement and linkage limbs remain the law, and your paper trail is the whole game:

• Date-stamped scheme circulars. Every scheme document, distributor communication or agreement clause must carry a date at or before the supplies it discounts. Announce quarterly schemes before the quarter's billing starts, not at true-up.
• Invoice mapping at settlement. Each credit note — tax or financial — should carry the specific invoice references it discounts, with the workings retained. This satisfies limb (i) today and remains the practical evidence standard even post-amendment.
• Reversal proof where Section 34 is used. Keep the recipient's reversal workings (GSTR-3B trail) against each tax credit note; the certificate mechanism is gone, the obligation is not.
• Decide the CN type at scheme design. The tax-vs-financial choice belongs in the scheme document, not in a settlement-time scramble — a discipline every CFO managing claims and deductions should hard-code.

This is where tooling earns its keep: ClaimDS keeps the scheme agreement, its date, its terms and every settlement against it in one record, and settles claims invoice-linked by construction — so the 15(3)(b) paper trail (pre-dated agreement, invoice mapping, credit-note basis) exists automatically rather than being reconstructed for an audit.

What businesses should do now

1. Comply with the current text. The amendment is enacted, not in force. A post-sale scheme claiming Section 34 treatment today still needs the pre-supply agreement and invoice linkage. Do not price schemes on the relaxed test yet.
2. Watch for the commencement notification. The switch will arrive as a central tax notification appointing the date for sections 153–155 of the Finance Act 2026. Until you can cite that notification number, the old conditions govern.
3. Keep documentation robust either way. Every practice above — dated scheme records, invoice mapping, reversal trails — is required today and remains best evidence after the switch. There is no scenario in which weaker documentation wins.
4. Re-examine stranded schemes when it lands. Discounts that failed only the pre-agreement limb (like the worked example) become candidates for Section 34 treatment prospectively once the amendment is notified — subject to the Section 34 time limit now expressly attached to them.

For the broader question of what a rebate is in India, start with rebate meanings explained; for the circular governing the ITC side of settlements today, the practical guide to Circular 251 is the companion read.

Commencement status and disclaimer: This article is general information, not tax or legal advice. The Finance Act 2026 (Act No. 4 of 2026) received Presidential assent on 30 March 2026; its amendments to Sections 15 and 34 of the CGST Act (sections 153–155 of the Act) come into force from a date to be notified, and as of early July 2026 no commencement notification has been issued — CBIC's live statute pages still carry the pre-amendment text of Section 15(3)(b). The conditions described as "current law" here therefore remain operative. Verify the notification status on taxinformation.cbic.gov.in and take advice from a qualified professional before acting.