Discounts — Trade and Cash Discounts in Tally
Trade vs cash discount — GST treatment, Tally entries, and side-by-side comparison for Sunrise Retail
Module 15 of 31 — Tally Prime. Trade discount vs cash discount — how GST treats each differently and how to record both in Tally. Duration: 35 min.
Prerequisites: Module 10 — Sales Voucher
Learning Objectives
- Clearly distinguish trade discount from cash discount
- Understand the different GST impact of each type
- Record trade discount in purchase and sales vouchers (F9, F8)
- Record cash discount in Payment and Receipt vouchers (F5, F6)
- See both types side-by-side for Sunrise Retail transactions
Trade Discount vs Cash Discount — The Fundamental Difference
Trade Discount
- Given at the time of sale, shown on the invoice
- Reduces the price before GST is calculated
- GST is on the discounted (net) price — not the list price
- No separate accounting entry — it's part of the invoice
- Example: Buy 100 phones, get 5% off the list price
Cash Discount
- Given after the sale, for early payment
- Invoice is already raised at full price including GST
- No GST adjustment — the discount is on the post-tax amount
- Separate accounting entry in Payment or Receipt voucher
- Example: Pay within 10 days, get 2% off the invoice total
| Feature | Trade Discount | Cash Discount |
|---|---|---|
| Timing | At time of sale — on the invoice | After sale — when payment is received |
| Shown on invoice | Yes — deducted from unit price | No — not on the original invoice |
| GST calculation | On price after discount | No change to GST — already paid |
| Accounting treatment | Part of invoice; reduces taxable value | Separate Dr/Cr entry in books |
| Tally entry | Discount % column in F8/F9 | Additional ledger line in F6/F5 |
| ITC impact (buyer) | ITC is on the net (lower) taxable value | No ITC adjustment |
Part A: Trade Discount
Enabling the Discount Column
To show the discount percentage/amount column in purchase and sales vouchers:
This setting persists — you only need to do this once per voucher type.
Trade Discount on Purchase — TechWorld Distributors
TechWorld Distributors offers Sunrise Retail a 5% trade discount for orders of 50+ phones (bulk order incentive).
April 5 purchase: 100 phones × ₹12,000 list price.
Key point: IGST is ₹2,05,200 — calculated on ₹11,40,000 (after discount), NOT on ₹12,00,000 (list price). TechWorld Distributors invoices Sunrise Retail for ₹13,45,200.
Tally records:
The ₹60,000 discount is never booked separately — it reduces the purchase cost directly.
Trade Discount on Sales — Digital Hub Retail
Sunrise Retail gives Digital Hub Retail, Secunderabad a 3% trade discount for their regular bulk orders (buying ≥ 20 phones per order).
April 10 sale: 30 phones × ₹16,000 list price.
Digital Hub's ITC: ₹41,904 CGST + ₹41,904 SGST — calculated on ₹4,65,600, not ₹4,80,000.
Tally records:
Part B: Cash Discount
Cash Discount Allowed (Expense for Sunrise Retail)
Digital Hub pays Invoice SR-2025-0042 (₹5,28,640 net after sales return) 10 days early. Sunrise Retail rewards them with 2% cash discount for early payment.
Tally entry — F6 (Receipt):
No GST entry — cash discount does not affect the GST already reported.
Cash Discount Received (Income for Sunrise Retail)
Sunrise Retail pays TechWorld Distributors 15 days before the due date. TechWorld gives 1% cash discount for early settlement.
Tally entry — F5 (Payment):
Creating Discount Ledgers
Before recording cash discounts, create the two discount ledgers:
Side-by-Side Comparison — Sunrise Retail
On Purchase — 5% from TechWorld:
GST paid = ₹2,05,200 (on net ₹11,40,000)
On Sales — 3% to Digital Hub:
GST charged = ₹83,808 (on net ₹4,65,600)
GST Rule — Discounts (Section 15, CGST Act)
GST on trade discounts (Section 15(3)(a)): Trade discounts known at the time of supply and shown on the invoice reduce the taxable value. GST is charged only on the net amount.
Post-sale discounts (Section 15(3)(b)): Discounts given after the supply (e.g., year-end volume rebate) reduce the taxable value only if:
- The discount was agreed before/at time of supply, AND
- The recipient reverses the corresponding ITC
Cash discounts for early payment (prompt payment discounts) are generally not adjustable in GSTR — GST is paid on the full invoice value.
Practice Exercise
Exercise: TechWorld offers a 2.5% trade discount on the April 5 purchase of 100 phones at ₹12,000. Recalculate the invoice value and the IGST payable.
Show Solution
In Tally F9: enter Discount % = 2.5 in the discount column next to the stock item.
Input IGST ITC = ₹2,10,600 (compared to ₹2,05,200 in the 5% scenario — higher discount = lower taxable value = lower ITC).
Key Terms
| Term | Meaning |
|---|---|
| Trade Discount | Deduction from list price on the invoice — reduces GST taxable value |
| Cash Discount | Discount for early payment — separate entry, no GST impact |
| Discount Allowed | Expense ledger (under Indirect Expenses) — discounts given to customers |
| Discount Received | Income ledger (under Indirect Income) — discounts received from suppliers |
| Net Taxable Value | Invoice value after trade discount — GST is calculated on this amount |
| F12 in Voucher | Configuration to show/hide discount column in F8/F9 vouchers |
Module Summary
- Trade discount: deducted on the invoice, reduces GST taxable value — enter in Discount % column (F12 → Show Discount: Yes)
- Cash discount: for early payment, no GST impact — separate line in F6 Receipt (allowed) or F5 Payment (received)
- Discount Allowed = Indirect Expense (P&L debit); Discount Received = Indirect Income (P&L credit)
- Sunrise Retail April: 5% trade discount on TechWorld purchase → net taxable ₹11,40,000, IGST ₹2,05,200; 3% trade discount on Digital Hub sale → net taxable ₹4,65,600, GST ₹83,808
Checklist before moving on:
- F12 → Show Discount Column: Yes in F8 and F9 vouchers
- Trade discount on TechWorld purchase: IGST on ₹11,40,000 = ₹2,05,200
- Trade discount on Digital Hub sale: CGST+SGST on ₹4,65,600 = ₹83,808
- Discount Allowed ledger created under Indirect Expenses
- Discount Received ledger created under Indirect Income
- Cash discount entry (F6 Receipt) does not touch any GST ledger
Quick Quiz
1. GST is calculated on:
- a) The gross list price before any discount
- b) The price after trade discount (shown on invoice)
- c) The price after cash discount (early payment)
- d) The price after both trade and cash discounts combined
Answer
b) Price after trade discount — trade discounts shown on the invoice reduce the taxable value. Cash discounts given for early payment have no GST impact (GST is already settled on the original invoice amount).
2. Discount received from TechWorld for early payment is recorded as:
- a) Deduction from the purchase account
- b) Credit to Discount Received (Indirect Income)
- c) Debit to Discount Received
- d) Credit to TechWorld's ledger only
Answer
b) Credit to Discount Received (Indirect Income) — early payment discount received is income for Sunrise Retail. The entry clears TechWorld's full outstanding while paying less cash.
3. In Tally, to show the discount column in a sales voucher, you press:
- a) F11
- b) F12 → Show Discount Column: Yes
- c) Alt+D
- d) Ctrl+D
Answer
b) F12 (Configuration) inside the voucher → Show Discount: Yes. F11 is for company features; F12 is for voucher-level display configuration.
4. Sunrise Retail sells 30 phones at ₹16,000 with 3% trade discount. Digital Hub's ITC (CGST) is:
- a) ₹43,200 (on ₹4,80,000)
- b) ₹41,904 (on ₹4,65,600)
- c) ₹38,880 (on ₹4,32,000)
- d) ₹14,400 (the discount amount)
Answer
b) ₹41,904 — net taxable value after 3% discount = ₹4,65,600. CGST at 9% = ₹41,904. ITC is always on the net taxable value, not the gross price.