Glossary
What is Discount and scheme?
A discount is a price reduction given to a customer; a scheme is a structured offer such as a festival rate or a volume deal. For a registered seller, VAT is generally charged on the discounted amount actually paid, so the bill shows the discount before tax.
A discount lowers the price on a bill. A scheme is the rule behind discounts across many bills: a Dashain rate, a volume slab for retailers, or a distributor offer for the season. Both change what the customer pays, and so both change the VAT on the invoice.
How it works in practice
For a VAT-registered seller, VAT is calculated on the amount the customer actually pays. A discount given at the time of sale is shown on the invoice and taken off before the tax is worked out.
As an example, a hardware dealer bills Rs 50,000 of fittings and gives a contractor 5% off. The invoice shows the Rs 50,000, a Rs 2,500 discount, a taxable amount of Rs 47,500, and VAT calculated on Rs 47,500. Working out VAT on the full Rs 50,000 and then taking the discount off the total gives a different and wrong answer. The invoice calculator shows the right order.
Schemes and discounts after the sale
A volume scheme settled at the end of a month or season is a discount agreed after the invoices were issued. Those invoices stay as they are, and the reduction goes through a credit note linked to the original, which adjusts the VAT charged.
Free-goods schemes, such as an extra carton with a large order, need more care. How the free goods are shown on the bill and treated for VAT is a question to settle with the IRD or your accountant, under the VAT Act 2052 and VAT Rules 2053, before you run one.
Common mistakes
- Editing an issued invoice to give a late discount instead of raising a credit note.
- Letting everyone at the counter discount at will, so the price list means nothing by month end.
- Cutting the price on a line that already runs on a thin margin. Check it with the profit margin calculator before announcing the scheme.
- Taking the discount off after VAT, which over-collects tax you then have to pay over.
Where it matters most
FMCG distributors and wholesalers passing on supplier schemes, hardware dealers giving contractor rates, clothing shops running festival sales, and pharmacies giving a standing rate to institutions.
In Kuver Books, customer types carry a standing discount percentage, products can be marked no-discount, and whether a role may discount at all is its own permission, as the customer types help page explains.
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