There is no separate discount hsn code in GST: a discount is not a supply, so it carries the HSN or SAC of the goods or services it relates to. A discount shown on the invoice reduces the taxable value at once, and a discount given later is passed through a credit note that repeats the original item's code.
Rate difference notes, interest on late payment and late fees also confuse billing staff. This page explains each, with a credit note example and the composition scheme rates. Work out tax on the net value with the GST calculator.
Discounts and other charges: codes and GST rates
Item / HSN / GST- Discount shown on the invoiceAs the main supplyReduces taxable value
- Discount after supply, agreed in advanceAs the main supplyCredit note with the item's HSN
- Discount after supply, not agreed in advanceAs the main supplyDoes not reduce taxable value
- Rate difference credit noteAs the main supplyCarries the original HSN
- Rate difference debit noteAs the main supplyCarries the original HSN
- Interest on late payment of GSTNot a supply18% a year under section 50
- Late fee for late returnsNot a supplyFixed by law per day
- Composition scheme tax for traders and makers1%On turnover
- Composition scheme tax for restaurants5%On turnover
Quick facts
HSN for a discount
Same as the goods or service discountedCredit note
Must show the original HSN or SACInterest on late GST
18% a year (section 50)Composition rates
1% traders and makers, 5% restaurants, 6% servicesLaw
Section 15(3) of the CGST ActDigits to print
Same digits as the original invoice
Discount hsn code in GST: the rule
Section 15(3) of the CGST Act says a discount is excluded from the taxable value if:
- It is given before or at the time of supply and shown on the invoice, or
- It is given after the supply, was agreed before the supply, is linked to specific invoices, and the buyer reverses the matching input tax credit.
In both cases the discount is part of the original supply, so it has no code of its own. The credit note shows the HSN of the goods, the reduced value and the tax adjusted.
Discount on sales hsn code: examples
Invoice discount: Cement 100 bags, HSN 2523, list value Rs 40,000, trade discount 5% Rs 2,000, taxable value Rs 38,000, CGST 9% Rs 3,420, SGST 9% Rs 3,420.
Post sale discount agreed in the dealer agreement: Credit note for 2% volume discount on last quarter's invoices, HSN 2523, value Rs 20,000, CGST 9% Rs 1,800, SGST 9% Rs 1,800 reduced.
A discount that was not agreed in advance, such as a goodwill discount after a dispute, does not reduce the taxable value. It can be given as a financial credit note without GST.
Rate difference hsn code in GST
Rate difference credit or debit notes adjust the price of an earlier invoice. They carry the HSN and tax rate of the original goods. A debit note for a price increase adds tax; a credit note for a price cut reduces it. Report them in GSTR-1 against the original invoice details.
Interest on late payment of GST
Interest on late payment of GST is 18% a year under section 50 of the CGST Act, worked out on the net tax paid late (the cash portion). Wrongly claimed credit that was used attracts interest at 24% a year. Interest and late fees are not supplies, so they have no HSN and carry no GST.
Composition scheme gst rate
Under the composition scheme in section 10, a small business pays tax at a flat rate on turnover instead of charging GST:
| Business | Rate on turnover |
|---|---|
| Manufacturers and traders | 1% |
| Restaurants not serving alcohol | 5% |
| Eligible service providers | 6% |
The turnover limit is Rs 1.5 crore for goods (lower in some special category states) and Rs 50 lakh for services. Composition dealers issue a bill of supply, cannot collect tax, and cannot take input tax credit. See the GST rate list for regular rates.
Other charges on invoices
Freight, packing, insurance and similar charges billed with goods normally take the goods' HSN and rate. Bank charges deducted by a payment gateway are a separate service at 18%; see bank charges.
Billing staff should read these discount and credit note rules as a general guide to section 15(3) and related provisions. Each discount scheme should be checked against its written terms, so consult the GST portal and a GST practitioner or chartered accountant before issuing credit notes.
Frequently asked questions
What is the HSN code for discount?
A discount has no HSN of its own. It takes the HSN or SAC of the goods or services it relates to.
Does a discount reduce GST?
Yes, if it is shown on the invoice, or if it was agreed before supply, linked to invoices and passed through a credit note with the buyer reversing credit.
What is the interest rate on late payment of GST?
18% a year on the tax paid late. Interest on wrongly used credit is 24% a year.
What is the composition scheme gst rate?
1% for traders and manufacturers, 5% for restaurants and 6% for eligible service providers, on turnover.
What HSN goes on a rate difference credit note?
The HSN of the original goods on the invoice being adjusted.