Government Withdraws Stringent Rules To Tax Dealer Incentives

Dealers won't have to pay tax on pre-agreed promotional schemes offered on behalf of manufacturers.

A circular intended to levy goods and services tax on such post-sales discounts either pre-agreed or part of the contract with manufacturers stands withdrawn, according to a clarification by the Central Board of Indirect Taxes and Customs.

Companies offer such discounts to dealers as incentives and ask them to conduct advertising campaigns to promote products.

According to GST provisions, any pre- or post-sales discounts that are pre-agreed and documented through invoice are not subject to GST, said Krishan Arora, a tax partner at Grant Thornton India LLP. But the previous clarification seemed to have provided a different intent, he said.

With the withdrawal of the circular, such discounts would be treated as per the law, said a government official on the condition of anonymity. A further clarification would be issued if need arises, and sought by the industry, he added,

In cases where discounts are not documented in prior agreements, such transactions are always exposed to GST, Arora said. If a manufacturer issues credit notes to dealers to compensate them for certain promotional or sales support activities that are additionally done for an agreed compensation, that will still be considered as an independent service and could attract GST, said Arora.