Experts flag input tax credit blockage for FMCG distributors despite GST relief
GST
Dated:- 28-9-2025
PTI
Kolkata, Sep 28 (PTI) The governmentÂ’s recent circular has brought clarity on trade discounts and credit notes under the GST regime, but has shifted compliance obligation and cash-flow pressure onto FMCG distributors, experts said.
Indirect Tax Expert at LexVed Vedika Agrawal said the GST circular 251 makes it clear that financial or commercial credit notes – those issued without GST – do not require distributors to reverse their input tax credit (ITC).
Input tax credit is the tax a business unit pays on its purchases, which it can claim back to lower the tax it owes when it sells products or services.
“For manufacturers,
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once the proposed amendment to Section 15 of the CGST Act—discussed in the 56th GST Council meeting—is notified.
“After the amendment, GST credit notes can be issued even without a pre-sale agreement or invoice linkage. This will ensure that accumulated input tax credit doesn’t remain blocked at the recipients’ end, since ITC reversal at the recipient’s end would be required once the supplier adjusts the output tax. The problem will persist for about a year until this amendment takes effect,” he said.
The circular also clarified the treatment of trade discounts, Agrawal said.
“Where manufacturers only support dealer pricing, no extra GST arises. But if they directly promise a lower price to consumers, dealers must add such support to th
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edit that may build up following the rate reductions, and urged the government to specify how such credits will be treated to avoid disputes during audits.
The Goods and Services Tax (GST) Council recently decided to rationalise the tax rates and have a two-rate structure of 5 per cent and 18 per cent. The revision, which was made effective from September 22, was expected to reduce the prices of a large number of products and services.
The federation also pointed out an anomaly in the detergent segment, noting that while GST on detergent cakes has been cut to 5 per cent, washing powders remain at 18 per cent.
“This distortion will adversely impact consumers. We urge that powders also be brought under the 5 per cent slab,” it said.
AICPD
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