Issue - Whether GST shall be charged after deduction of both Trade Discount and Cash Discount?

As per Section 15 of CGST Act, 2017, GST shall be charged on Net Value i.e. after discount (Trade Discount and Cash Discount).

It means GST shall be calculated on the Gross Price less Discounts allowed (both Trade Discount & Cash Discount).

Net Value = Gross Value - Trade Discount - Cash Discount

And GST Shall be Caluculated on Net Value.

Let's see one example to understand better.

Example 1 : Ram & Co. (Delhi) sold goods to Mohan & Co. (Delhi) of List Price Rs. 1,00,000, less Trade Discount 20%, Cash Discount is 2%. Mohan & Co. paid the amount at the time of Sale. Rate of CGST & SGST is 6% each. Invoice prepared by Ram & Co. shall be as follows:

List Price 1,00,000

Less: Trade Discount (20%) 20,000

80,000

Less: Cash Discount 1,600

78,400

Add: CGST @6% 4,704

Add: SGST @6% 4,704

87,808

Journal Entry for the above:

In the books of Ram & Co.

Cash A/c Dr. 87,808

Discount AllowedA/c Dr. 1,600

To Sales A/c 80,000

To Output CGST A/c 4,704

To Output SGST A/c 4,704

I hope now you have clearly understood the effect of Trade Discount and Cash Discount while calculating the value GST.

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