Post-supply discounts, credit notes and refunds: Notification No. 03/2026-Central Tax brings the CGST amendments into force from 1 November 2026

The Central Government has issued Notification No. 03/2026-Central Tax dated 26 October 2026 under clause (b) of section 1(2) of the Finance Act, 2026. It appoints 1 November 2026 as the date on which sections 153 to 155 of that Act come into force. The Finance Act received assent on 30 March 2026, and most of it applied from 1 April 2026. These three sections were held back for a notified date. They amend section 15 (value of supply), section 34 (credit and debit notes) and section 54 (refunds) of the Central Goods and Services Tax Act, 2017 (CGST Act).

Of the three, the change to post-supply discounts will reach the most businesses.

Post-supply discounts under section 15(3)(b)

Section 15(3) keeps two kinds of discount out of the value of supply. Clause (a), for a discount given before or at the time of supply and recorded in the invoice, is untouched. Clause (b), for a discount given after the supply, has been substituted.

Up to 31 October 2026, clause (b) required both of the following:

• the discount was established in terms of an agreement entered into at or before the time of the supply and specifically linked to relevant invoices; and
• the input tax credit attributable to the discount was reversed by the recipient, on the basis of a document issued by the supplier.

From 1 November 2026 the clause reads:

“(b) after the supply has been effected, if for such discount, a credit note has been issued by the supplier and input tax credit as is attributable to such discount has been reversed by the recipient of the supply, in accordance with the provisions of section 34.”

The Memorandum explaining the Finance Bill, 2026 describes the purpose as doing away with the requirement of linking the post-sale discount with an agreement, and referring instead to the credit note under section 34 where the recipient reverses the credit.

The first condition is where most disputes arose. A turnover or target discount is announced at the start of the year, but who qualifies and for how much is known only when the year’s sales are counted. Under the old wording such a discount could be questioned because it was not fixed before the supply, or because it could not be tied to particular invoices. Neither objection survives the new text.

Two conditions remain, and both are now tied to section 34.

The first is the form of the document. The old clause accepted ITC reversal “on the basis of document issued by the supplier”, which left room for a financial or commercial credit note issued outside GST. The new clause asks for a credit note, in accordance with section 34. A note raised only in the books, without GST, will not reduce the supplier’s value of supply. Suppliers who have so far issued discount notes without tax should decide, scheme by scheme, which of them are to carry the value reduction from November.

The second is the recipient’s reversal. The supplier’s relief still depends on what the buyer does. The amendment does not change that, and the supplier should keep a record that each customer has reversed the credit attributable to the discount.

Credit notes under section 34

Section 34(1) allowed a credit note where the taxable value or tax in the invoice exceeded what was payable, where goods were returned, or where goods or services were found deficient. Section 154 of the Finance Act, 2026 adds a fourth case: where a discount referred to in clause (b) of section 15(3) is given.

The rest of section 34 applies to these credit notes as to any other. Under section 34(2) the credit note is declared in the return for the month in which it is issued, within the outer limit in that sub-section, and its proviso bars any reduction in the supplier’s output tax where the incidence of tax and interest has been passed on to another person. A discount settled late in the year still has to be documented inside that window, so the calendar for working out scheme discounts matters more now than the terms of the agreement.

Provisional refund for inverted duty structure under section 54(6)

Section 54(6) allows the proper officer to sanction, on a provisional basis, ninety per cent of the amount claimed, excluding input tax credit provisionally accepted, and to pass the final order under section 54(5) after verifying the documents. Until now it applied to refund claims on account of zero-rated supplies, other than by such categories of registered persons as the Government notifies on the Council’s recommendation.

Section 155(a) of the Finance Act, 2026 extends it to refunds of unutilised input tax credit allowed under clause (ii) of the first proviso to section 54(3), which is the refund on account of an inverted duty structure. The provisional refund is given “in such manner and subject to such conditions, limitations and safeguards as may be prescribed”. The sources read do not show the corresponding rule or form yet, so claimants should check the refund rules before relying on the provisional amount in a November claim.

A provisional refund is not the final order. Errors in the claim surface at verification, so the turnover and ITC figures behind an inverted duty claim should be reconciled with the returns before filing.

The one thousand rupee floor under section 54(14)

Section 54(14) bars payment of any refund under section 54(5) or 54(6) where the amount is less than one thousand rupees. Section 155(b) of the Finance Act, 2026 excludes from that bar cases where refund of tax is claimed on account of goods exported out of India with payment of tax. The Memorandum describes this as removing the threshold for such exports. Small refunds of tax paid on goods exported are therefore no longer withheld for their size. The floor continues for every other refund.

What the notification leaves open

The notification does nothing but appoint the date. It contains no transitional provision. A discount on a supply made in, say, August 2026 and settled by credit note in December 2026 falls between the two versions of section 15(3)(b), and neither the notification nor the Finance Act says which applies. Until the Board clarifies it, the safer course is to issue the credit note under section 34 and to keep the scheme documents and the invoice linkage for such discounts where they exist, so that the claim stands under either version.

The notification also brings into force only the amendments to the CGST Act. The Memorandum states that amendments made through the Finance Bill are to come into effect from the date notified, concurrently, as far as possible, with the corresponding amendments to the State and Union territory Acts. The State notifications were not among the documents read for this article; whether a State has notified the same date should be checked before applying the new clause to the SGST portion of a discount.

Earlier clarifications on post-sale discounts were written against the old text of section 15(3)(b). They should be read again in the light of the new clause before current practice is changed.

This article is intended for educational purposes only and should not be construed as professional advice. It is based on the law as understood on the date of publication; laws and regulations are subject to change, and it may not reflect later developments. Readers are advised to consult a qualified tax professional on their specific situation before taking any action based on it. CA. Mohit Gaba takes no responsibility for any action taken or decision made on the basis of this article.