The Ministry of Finance has set November 1, 2026, as the start date for new GST rules on post-supply discounts, credit notes and refunds. The changes amend three provisions of the Central Goods and Services Tax Act.
The Department of Revenue, through the Central Board of Indirect Taxes and Customs, issued Notification No. 03/2026–Central Tax on October 26, 2026. The notice, numbered S.O. 5791(E), brings Sections 153 to 155 of the Finance Act, 2026, into force under Section 1(2)(b) of that Act.
The changes let suppliers reduce taxable value for qualifying post-sale discounts through credit notes, provided recipients reverse the related input tax credit. They also extend provisional refunds to eligible inverted-duty claims and remove a minimum refund amount for certain exports.
The rules were announced in the 2026-2027 budget, after being proposed as Clauses 137 to 139 of the Finance Bill, 2026, within the Union Budget 2026–27. The operative provisions now have a fixed commencement date.
Suppliers can account for post-sale discounts without a pre-agreed invoice link
Until the amendment, businesses seeking to exclude a post-supply discount from taxable value had to meet conditions that included an agreement made at or before the time of supply. That agreement also had to link the discount to the relevant invoices. The recipient had to reverse the attributable ITC.
Section 153 replaces Section 15(3)(b). It removes the statutory requirements for a prior agreement and specific invoice linkage. A supplier may exclude a post-supply discount from taxable value if it issues a credit note and the recipient reverses the related ITC under Section 34.
The amendment covers commercial adjustments such as volume rebates, annual turnover incentives and target-based discounts. It does not remove the need for credit-note documentation, applicable reporting or verification of the recipient’s ITC reversal.
Section 154 amends Section 34(1) to expressly include a discount granted after supply as a reason to issue a credit note. The recipient’s reversal remains tied to the supplier’s ability to claim a corresponding reduction in taxable value.
The 56th GST Council had also recommended rescinding Circular No. 212/6/2024-GST, dated 26 June 2024. The Council called for clarifications on financial or commercial credit notes where ITC is not reversed, manufacturer discounts passed through dealers, and discounts given in exchange for a dealer’s promotional activity.
The refund changes target inverted-duty claims and export refunds
Section 155 amends Section 54. The revised Section 54(6) extends provisional refunds to eligible unutilised ITC claims arising from an inverted duty structure. Eligible claims can receive a provisional refund of 90%, subject to the applicable conditions.
The other change affects Section 54(14). It removes the Rs. 1,000 minimum refund threshold for tax refunds on goods exported from India with payment of tax. The minimum continues to apply to other refund categories covered by that provision.
The Council had recommended a provisional payment of 90% of the amount claimed in inverted-duty cases. Before the statutory amendment, it asked CBIC to direct officers to issue provisional refunds after system-based identification and risk evaluation. The Council also backed amendments to Rule 91(2), with detailed scrutiny available in exceptional cases if an officer records reasons in writing.
Related measures, including the risk-based process and categories of registered persons who could be excluded from provisional refunds, were operationalised from 1 November 2025. Further refund reforms proposed at the 57th GST Council meeting require their own implementation measures.
The GST Council set the reform process in motion in 2025
The amendments follow recommendations made at the Council’s meeting in New Delhi on September 3, 2025. The meeting advanced reforms framed around Prime Minister Shri Narendra Modi’s Independence Day address on 15 August 2025, which called for reducing the burden on essential goods and relief for households, small retailers, MSMEs and local vendors.
On discounts, the Council recommended omitting Section 15(3)(b)(i), and linking the new treatment to a credit note under Section 34 and the recipient’s ITC reversal. It also asked for the circular to be rescinded and clarifications to address how different commercial discount arrangements should be treated.
Before the change, post-supply adjustments were governed by Section 15(3)(b), the CGST Rules, 2017 and related notifications. Taxable value could be reduced only when the required terms were agreed at the time of sale, tax incidence had not been passed to another person, and the recipient reversed the corresponding ITC. Cash discounts, cashback schemes and promotional discounts were among the arrangements covered by the earlier framework.
Gujarat and Haryana have passed matching state amendments
Gujarat enacted the Gujarat Goods and Services Tax (Amendment) Act, 2026, as Gujarat Act No. 14 of 2026. The Governor gave assent on September 23, 2026, and the state published the measure in its Gazette that day. The Act mirrors the central changes on discounts, credit notes and refunds, but its provisions take effect on dates appointed by the state through Gazette notifications.
Haryana issued its corresponding amendment on October 14, 2026, as Notification No. Leg. 45/2026. It makes the same four changes, including provisions on unutilised ITC refunds and exports made with payment of tax. Sections 2 to 4 take effect on dates the Haryana Government appoints through Gazette notifications.
Businesses still need evidence that recipients reversed the tax credit
Lakshmikumaran & Sridharan, in a February 2026 analysis, said the old agreement and invoice-linking conditions often clashed with commercial practice and required extensive documentation. The firm said businesses would no longer need a discount policy agreed in advance, provided recipients reverse the associated ITC.
“Since the discounts now depend solely on ITC reversals, suppliers will need to rely heavily on IMS to monitor, track and ensure those reversals,” the firm said.
The firm added that suppliers may continue asking recipients for certificates confirming the reversal, even though the law does not require them, to support audit checks. It also noted that the amended provision does not define the term “discount.”
