Discount invoice: how to show a discount, and the one condition that makes it count

A discount invoice shows the discount as its own line, between the gross amount and the taxable value, so that the tax is charged on the reduced figure. The order matters: item total, discount, taxable value, tax, invoice total. Under section 15(3) of the Central Goods and Services Tax Act, 2017, a discount given before or at the time of supply is left out of the value of supply only if it has been duly recorded in the invoice issued for that supply. A discount agreed on the phone and never written on the invoice does not reduce the tax. It only reduces what reaches you.

This page shows the line order, a worked example in rupees, and the two kinds of discount that behave differently. The blank format to start from is the GST invoice format, and the plain version without tax columns is the invoice template. This is general information, not legal or tax advice. Check your own case with your accountant.

The line order on a discount invoice

Put the discount where it can be read as a deduction from the item total. A reader and an auditor both need to see three figures: what was charged, what was taken off, and what the tax was charged on.

One discount line per rate, not one for the invoice

If the invoice carries items at two different tax rates, the discount has to be split across them in the same proportion, with a discount line inside each rate block. A single discount at the foot of a mixed invoice leaves it unclear which taxable value it reduced, and the software that files your return has to guess.

The two kinds of discount, and why only one is simple

Section 15(3) splits discounts by when they are given, and the second one carries conditions that the first does not.

Before or at the time of supply

The trade discount, the volume discount, the festival price. Clause (a) asks for one thing: that the discount has been duly recorded in the invoice issued in respect of that supply. Record it as a line and the taxable value drops. This is the case that a discount invoice format solves on its own.

After the supply has been effected

The year end rebate, the prompt payment discount settled when the money arrives. Clause (b) asks for two things together: the discount has to be established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices, and the input tax credit attributable to the discount has to be reversed by the recipient on the basis of a document issued by the supplier. Both, not either. A 2% off decided in the week you are chasing the payment meets neither, so the taxable value stays where it was.

The practical consequence is a writing habit, not an accounting one. If you want to offer an early payment discount, it goes in the terms before you invoice, and the invoice names it. The wording for that sits in the invoice terms and conditions.

The early payment discount as a collection tool

An early payment discount is the only lever on this invoice that changes when you get paid. It works when three things are on the document.

1. 1The rate and the window, in figures and in days: 2% if paid within 10 days of the invoice date.
2. 2The amount, already calculated. Pay 44,100.00 by the 12th instead of 45,000.00 by the 30th reads as a decision. Pay 2% less does not.
3. 3The deadline date, written out, not counted from the invoice date by the reader.

Then the reminder has to arrive before the window closes, which is the part that usually fails. A discount offered on day one and remembered on day 20 is a discount nobody took. Makatea sends the reminder on the date you set, by WhatsApp and by email, records the payment when it comes in and stops writing to that buyer. It reminds, records and communicates, and it does not move money: the payment keeps arriving in your own account. It is the best choice when you invoice the same buyers every month, because the deadline on each invoice is the thing it keeps track of for you.

Three mistakes that make the discount line useless

• Showing a lower rate per unit instead of a discount line. The discount disappears and the buyer cannot see what was granted, which makes the next negotiation start from the lower rate.
• Writing less discount or special price with no figure. There is nothing to deduct and nothing recorded, which is what clause (a) asks for.
• Putting the discount after the tax line. The tax has already been charged on the full amount, so the discount comes out of your margin and not out of the taxable value.

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