GST on Incentives, Discounts and Schemes Earned by Dealers: HSN/ SAC Code, Taxability, and Rate

Incentives, discounts, and schemes are often offered by suppliers to dealers in order to promote sales. However, the taxability of these incentives, discounts, and schemes under GST can be complex.

Understanding the GST implications on these benefits received from suppliers is crucial for dealers to ensure compliance and avoid any potential issues. This article will discuss the taxability of incentives, discounts, and schemes under GST, including the HSN code, taxability, and rate.

What are Incentives, discounts, and Schemes by Supplier?

In the context of dealers, incentives, discounts, and schemes by supplier (For dealers) are as follows:

• Incentives: These are rewards or bonuses offered to dealers by suppliers to encourage them to achieve specific targets or promote certain products. For example, a supplier may offer a cash incentive to dealers who exceed a monthly sales target or provide additional commission for every unit sold above a certain threshold.
• Discounts: Suppliers may provide dealers with discounts on the purchase price of goods. For instance, a supplier may offer a trade discount of 15% to dealers when they buy products in bulk or a seasonal discount of 10% to incentivize dealers to promote and sell specific items during a particular period.
• Schemes: Suppliers introduce schemes to motivate dealers and boost sales. One example is a “Buy One, Get One Free” scheme, where dealers receive an additional product at no cost for every unit they purchase. Another scheme could be a loyalty program where dealers earn points for every purchase, which can later be redeemed for gifts or discounted prices on future orders.

GST Law on Discounts and Incentives received from Supplier.

As per Central Goods and Services Tax Act, 2017

The government in clarification has declared that Advertisements or special promotion drives undertaken by the dealer of a company will be now considered as a service and would be taxed.

As per this clarification, Companies that offer additional discounts to their dealers as incentives and ask them to conduct advertising campaigns to promote their brand/products. These incentives given to dealers shall now be taxed. Dealers will charge GST on the service they provide to companies, for which companies will be eligible to claim ITC.

Taxability of incentives or discounts offered to dealers for undertaking promotional activities would compel organizations to relook their tax liabilities.

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

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

Incentive HSN Code

Incentives, benefits, discounts and schemes are deemed to be services under the GST Rule. The HSN code applicable for incentive is 999792 which is for services that are related to “Agreeing to do an act”. The applicable GST rate for the Incentive is 18%.

GST on Incentive (Summary)

Conclusion

The government has clarified that advertisements or promotional activities conducted by dealers on behalf of companies will be considered as a taxable service. Dealers will charge GST on the service provided, and companies can claim Input Tax Credit (ITC) for the taxes paid.

Additionally, if companies offer discounts to dealers for passing on to customers, GST will be payable on the amount including the discount value. Dealers can claim full ITC on the total tax paid, including the amount for which a credit note has been issued by the company. This clarification affects the tax liabilities of organizations and requires them to reassess their obligations.

FAQs

What is the HSN code for incentive and commission?

The HSN code for incentives is 999792. This code is used to classify goods or services related to incentives in international trade. On the other hand, the HSN code for commission or fee is 996111. This code specifically pertains to the classification of goods or services associated with commissions or fees in various trade transactions.

Is incentive taxable in GST?

Yes, incentives are considered as services provided by dealers and are subject to tax under the Goods and Services Tax (GST) regime.

What is GST rate for incentive?

Incentives fall under the services category in GST regime and a tax of 18% is chargeable on incentives provided by suppliers.

Difference between HSN and SAC Code?

HSN code is used for classifying both goods and services, while SAC code is used for classifying services specifically in the context of GST in India.

What is the rate of GST on incentive received from supplier?

18% GST should be charged on the incentive received from supplier.

Is GST payable on Incentive Income?

No, If incentive is received from supplier as a part of scheme then no adjustment on GST is required and the dealer can claim whole ITC on the taxable supply without any adjustment.