Dealer Incentives To Be Taxed Under GST, Clarifies Government

Advertisements or special promotion drives undertaken by the dealer of a company will be classified as a service, and would be taxed, the government said in a clarification.

Companies offer additional discounts to their dealers as incentives and ask them to conduct advertising campaigns to promote products. These incentives given to dealers will now be taxed, the clarification said.

Dealers will charge Goods and Service Tax on the service they provide to companies, for which the latter will be eligible to claim credit, it said.

Taxability of incentives or discounts offered to dealers for undertaking promotional activities would compel businesses to relook their tax positions, said Abhishek Jain, an indirect tax partner at EY India.

The Central Board of Indirect Taxes and Customs has also clarified that if companies offer discounts to dealers for increasing sales, to be passed on to consumers, GST will have to be paid on the amount including the discount value. For instance, if a supplier offers a discount of Rs 500 discount to a dealer which was not known at the time of sale, and mandates the dealer to pass it on to customers, the dealer will have to pay tax on the value of goods including the discount of Rs 500.

The clarification also said that if a company issues a credit note to a dealer, the latter would be able to claim full input tax credit on the total tax paid on a supply, including the amount for which a credit note has been issued. For instance, if a dealer buys goods worth Rs 10,000 from a supplier and pays GST of 18 percent (Rs 1,800), and later gets a discount of Rs 1000 from the supplier in the form of a credit note, he will be able to claim credit on Rs 1,800. Earlier, the industry had doubts if businesses would be eligible to claim credit on the amount for which a credit note has been issued.