CBIC GST Circulars on Discounts

CBIC GST Circulars on Warranty, Discounts & Compliance: Complete Guide for Businesses (2025)

 

The Central Board of Indirect Taxes and Customs (CBIC) has issued and updated multiple circulars on critical GST topics: warranty, post-supply discounts, and compliance evidence. Staying compliant is key for manufacturers, distributors, and service providers. Here’s a clear, practical breakdown—covering what’s clarified, what’s withdrawn, and what remains in force.

 

Circular No. 216/10/2024-GST: Warranty & Extended Warranty Clarity

This circular builds on Circular No. 195/07/2023-GST and extends its logic to replacement of goods (not just parts) under warranty.

 

Key Guidelines:

·        Replacement of Goods or Parts:

Whether a manufacturer replaces only parts or the entire goods under warranty, the same GST and ITC rules apply. This removes uncertainty for businesses handling complex warranty claims.

 

·       Distributor Role:

If a distributor replaces defective goods or parts from their own stock and is later replenished by the manufacturer, no GST is payable on replenishment and no ITC reversal is required by the manufacturer.

 

·       Extended Warranty:

If the extended warranty is sold by a different supplier or after the original supply of goods, it is treated as a supply of services (not a composite supply with goods). GST is applicable as per service tax rules, and the customer may claim ITC if eligible.

 

Practical Tip:

Update your warranty agreements and internal procedures to reflect these clarifications, especially if your supply chain involves multiple parties (OEM, distributor, third party).

Circular No. 212/6/2024-GST: Evidence for Post-Supply Discounts

Issued in June 2024, this circular provided a temporary compliance mechanism for suppliers to prove that recipients have reversed input tax credit (ITC) on post-supply discounts (as required under Section 15(3)(b)(ii) of the CGST Act).

Key Requirements (as per the now withdrawn circular):

 When Discounts May Reduce Taxable Value:

Post-supply discounts (by credit note) can reduce taxable value only if:

·         The discount is pre-agreed in writing

·         Linked to specific invoices

·         Recipient has reversed proportionate ITC (this is the critical compliance point)

 

·         Evidence Mechanism (Temporary):

Because there is no GST portal functionality to verify ITC reversal by recipients, suppliers were required to obtain a CA/CMA certificate from the recipient (with UDIN), confirming the ITC reversal.

 

·         Small Discounts:

If the tax on discount is under ₹5 lakh in a financial year, suppliers could obtain an undertaking from the recipient instead of a CA/CMA certificate.

·         Applicability:

This evidence (certificate/undertaking) was to be produced during scrutiny, audit, or investigation.

Reflection:

This circular was a stopgap measure until a formal ITC reversal verification system is built on the GST portal.

Circular No. 253/10/2025-GST: Withdrawal of the Evidence Mechanism

As of October 1, 2025, the Board has withdrawn Circular No. 212/6/2024-GST.

Suppliers are no longer required to obtain CA/CMA certificates or undertakings from recipients to prove ITC reversal for post-supply discounts.

Implications:

·        Compliance Burden Reduced:

Businesses no longer need to document or maintain CA/CMA certificates/undertakings for post-supply discount transactions.

·         Scrutiny Scenarios:

During audits or investigations, the focus now shifts back to the basics—the actual reversal of ITC by the recipient must be verifiable through returns, books, or other records.

·         System Upgrade Expected:

The withdrawal hints at future GST portal enhancements for direct ITC reversal verification, but until then, businesses must ensure their records are robust.

While the evidence mechanism is withdrawn, maintain internal documentation and reconciliation of credit notes and ITC reversals. Stay updated for any new CBIC instructions.

Scenario	CBIC Circular	Key Requirement	Status (Oct 2025)
Warranty replacement of goods/parts	216/10/2024	Same GST/ITC rules as for parts	Active
Distributor replaces, manufacturer replenishes	216/10/2024	No GST on replenishment, no ITC reversal needed	Active
Extended warranty sold separately	216/10/2024	GST as service, ITC as per rules	Active
Post-supply discount (credit note)	212/6/2024 (now withdrawn)	CA/CMA cert or recipient undertaking	Withdrawn by 253/10/2025

 

Practical Steps for Businesses

• Review contracts and warranty policies to align with the latest CBIC guidance.
• Train your teams—finance, sales, and customer service—on the updated compliance requirements.
• Maintain meticulous records of warranty replacements, credit notes, and ITC reversals, even though the formal evidence mechanism is withdrawn.
• Monitor CBIC updates for news of a GST portal upgrade for ITC reversal verification.
• Consult your GST advisor for case-specific scenarios, especially if your supply chain involves multiple parties.

 

Conclusion

With these clarifications and withdrawal, CBIC has streamlined some GST compliance processes while maintaining the need for accurate record-keeping. The withdrawal of the evidence mechanism for post-supply discounts reduces paperwork but puts the onus on businesses to ensure their transactions are fully verifiable.

 

Stay compliant, stay audit-ready.

If you have questions or unique scenarios, post them below—let’s discuss how these updates impact your business.

Updated as of October 2025, based on official CBIC circulars and notifications. Always consult your GST practitioner for specific advice.

Disclaimer:

This article is for informational purposes only and does not constitute legal or professional advice. Please consult a qualified GST practitioner for your business needs.

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