Sale season and the ₹2,500 line: how discounts change GST on clothes

Yes, a sale discount can lower the GST on clothes. The 5% or 18% rate depends on what one piece actually sells for before GST, after any discount printed on the bill, so a ₹3,000 kurta sold at 20% off is taxed at 5%, not 18%.

Many pages on this still quote the old ₹1,000 limit and 12%, or give the rate without saying which price it applies to: the tag, the MRP or the price after the discount. This guide works through sale-season billing: tax-inclusive tags, the grey band between ₹2,625 and ₹2,950, bill discounts, buy-one-get-one offers and refunds.

Does a discount reduce the GST rate on clothes?

It can, because the rate depends on the value of each piece. Since 22 Sep 2025, ready-made clothing and clothing accessories in HSN chapters 61 and 62, and most made-up textile articles in chapter 63 (worn clothing and rags excluded), are 5% when the "sale value" is not more than ₹2,500 per piece and 18% when it is more (GST Council, 56th meeting). Our guide to GST on clothes in 2026 covers the slab, HSN codes and fabrics.

The notification doesn't define "sale value", but GST is always charged on the transaction value. Section 15(3)(a) of the CGST Act says the value "shall not include any discount which is given before or at the time of the supply if such discount has been duly recorded in the invoice". So a sale discount on the bill comes off before the ₹2,500 test.

Take a kurta priced at ₹3,000 before GST. At full price it is 18%: GST ₹540, customer pays ₹3,540. At 20% off it is ₹2,400, which is not more than ₹2,500, so it is 5%: GST ₹120, customer pays ₹2,520.

MRP or sale value: which price decides 5% or 18%?

The sale value. The MRP or tag is what you print; GST is worked on what the customer actually pays for the piece. If you sell below the tag, the lower price is the transaction value.

Two conditions make the discount count:

• Given at or before the sale. A price cut you agree after the bill has gone out is a different case, covered below.
• Shown on the bill. The invoice should show the price, the discount and the taxable value after the discount. A shop that bills at the tag price and hands back cash at the counter has no recorded discount, and the bill stays at the tag price.

The test also uses the value before GST. You don't add GST first and then compare the result with ₹2,500. That matters a lot when your tags already include GST.

How does GST on clothes after discount work with tax-inclusive tags?

Most clothing shops print one price on the tag, and that is what the customer pays. GST is inside it. To test a piece, take the GST out of the price paid and compare what is left with ₹2,500. That gives two clean lines:

• Paid ₹2,625 or less: 5%. ₹2,500 plus 5% is ₹2,625. Anything up to that leaves ₹2,500 or less once 5% is taken out.
• Paid more than ₹2,950: 18%. ₹2,500 plus 18% is ₹2,950. Anything above that is still over ₹2,500 once 18% is taken out.

Between them is a band where neither rate works. Take ₹2,700. If 5% is inside it, the value is ₹2,571.43, which is over ₹2,500, so 5% can't be right. If 18% is inside it, the value is ₹2,288.14, which is under ₹2,500, so 18% can't be right either. Every price from ₹2,625.01 to ₹2,950 has the same problem. No notification or circular says what to do here, so the band is not settled in the law.

Each row is the price paid, divided by 1.05 or 1.18, to get the taxable value. For example, ₹2,550 ÷ 1.05 = ₹2,428.57, and ₹2,550 − ₹2,428.57 = ₹121.43 of GST. The grey-band rows show 18%, the rate that cannot under-pay tax. Whether that is right for your shop is a question for your CA.

Look at the first four rows from the shop's side. At 10% off, the shop keeps ₹2,288.14 after GST. At 15% off, the customer pays ₹150 less, but the shop keeps ₹2,428.57, which is ₹140.43 more. The deeper discount earns more because it crosses into 5%.

Is the ₹2,500 test per piece or per bill?

Per piece. The entry says "per piece", so a bill of four ₹1,000 shirts is ₹4,000 in total, but each shirt is ₹1,000 and all four are 5%. If one line has three identical pieces, divide the line's value after discount by three.

A discount on the whole bill is harder. "₹800 off the bill" has to be split across the lines before you can test any piece, and splitting one discount across items at different GST rates shows the pro-rata method and the paisa rounding.

Here is an example with tax-inclusive tags. A customer buys a jacket tagged ₹3,200 and a shirt tagged ₹800, and gets ₹800 off a ₹4,000 bill:

• Jacket's share: 800 × 3,200 ÷ 4,000 = ₹640, so the jacket sells for ₹2,560. That is under ₹2,625, so it is 5%: taxable ₹2,438.10, GST ₹121.90.
• Shirt's share: 800 × 800 ÷ 4,000 = ₹160, so the shirt sells for ₹640: taxable ₹609.52, GST ₹30.48.

Without the bill discount, the jacket alone would carry ₹488.14 of GST at 18%. The law doesn't say whether a share of a bill-level discount counts toward a piece's sale value the way a discount on the piece itself does. Splitting it pro-rata and testing each piece is the reading that follows section 15, but confirm it with your CA before a big sale.

How are buy-one-get-one and combo offers taxed?

A "free" piece is not a free supply. CBIC Circular 92/11/2019-GST says a buy-one-get-one offer is "two or more individual supplies where a single price is being charged for the entire supply", and that the rate follows section 8 on composite and mixed supplies.

That matters for clothes because the rate depends on each piece's value. Say two kurtas tagged ₹2,800 each, GST included, sell as buy one get one free for ₹2,800:

• Price spread over both pieces: ₹1,400 each, both at 5%. GST is ₹66.67 a piece, ₹133.34 in all.
• Whole price on one piece, the other at nil: the paid kurta is ₹2,800, inside the grey band. At 18% its GST is ₹427.12.

The circular's wording points toward spreading the price over both pieces, but it was written about soap and toothpaste, not a slab that depends on value per piece. A combo of different items sold as a set for one price could also be read as a mixed supply under section 2(74), which section 8 taxes at the highest rate among its items. The two readings can give different tax, so agree one method with your CA and use it on every bill. Showing each piece on the bill, with the offer as a discount, makes your method visible.

What about discounts after the sale, returns and exchanges?

A bill that has been issued is not edited. Changes after the sale go on a credit note under section 34. Our guide to cancelling or correcting a wrong GST invoice covers the mechanics and the time limit.

A price cut after the sale. Suppose a customer bought a ₹3,000 kurta on Monday, the sale started on Friday, and you refund the difference. As of 18 Oct 2026, section 15(3)(b) lets a post-sale discount reduce the value only if it was agreed at or before the sale and linked to the invoice. Circular 92 says discounts not known at the time of sale are not excluded. A goodwill refund like this one usually fails that test. The Finance Act 2026 replaces clause (b) with a credit-note test, but CBIC marks the change "w.e.f. yet to be notified", so it is not in force yet.

Since 1 Oct 2025, section 34(2) also bars reducing your tax on a credit note to a buyer who isn't registered if the tax has been passed on to anyone else. Nothing in the law re-runs the ₹2,500 test on a credit note, so don't assume a refund turns an 18% bill into a 5% one. Ask your CA.

Returns. A returned piece is reversed by a credit note at the value and rate on the original bill.

Exchanges. Treat an exchange as a return plus a new sale. The new piece is tested on its own price on the new bill, so a ₹2,400 piece swapped for a ₹3,200 one can move from 5% to 18%.

How should you price clothes for sale season?

• Round sale prices to ₹2,625 or below, or to ₹2,951 or above, if your prices include GST. With prices before GST, the lines are ₹2,500 and ₹2,500.01.
• Check the price after discount, not the tag. A 10% sale on ₹2,999 tags gives ₹2,699.10, inside the grey band. 15% off gives ₹2,549.15, which is 5%.
• A small cut can pay for itself. Moving a ₹2,999 tag down to ₹2,625 saves the customer ₹374, but what the shop keeps after GST falls only from ₹2,541.53 to ₹2,500, a ₹41.53 difference.
• Test combos before printing the poster. Work out what each piece sells for under the method your CA agreed.

How Pocket Journal for Garments handles the ₹2,500 line

Pocket Journal for Garments is a till for clothing shops: scan a barcode, add a line discount or a bill discount in rupees or percent, and print the slip. A bill discount is spread across the lines in proportion to their value after any line discount.

GST billing in the app is built but not switched on yet. When it is, the app tests each line's price per piece after both the line discount and its share of the bill discount. Prices are treated as GST-inclusive, so a piece selling for ₹2,625 or less is charged 5%, and anything above that is 18%. That includes the grey band, where the app takes the side that never under-pays.

Know the limits before you rely on it:

• GST is off by default. Once GST billing is available, the shop switches it on in its settings and enters its GSTIN. Until then, the app charges no GST.
• One slab for the whole shop. The ₹2,500 rule applies to every item, which fits clothing. Footwear, bags or other goods would each need their own rate, which the app doesn't yet set per product.
• Totals on the slip. The printed slip shows the bill's taxable value and tax as totals, not each line's rate. Check with your CA before you use it as your tax invoice.
• No offer logic. Buy-one-get-one offers are entered as discounts, so the app follows whatever method you and your CA settle on.