Discount
Also called: price discount
What is Discount?
A discount is a reduction from the normal price, offered to win a sale, clear stock, reward volume or settle an invoice early. It can be given at the time of billing or agreed afterwards, and the two are treated differently for tax.
Why Discount matters
Discounts come straight out of margin, so a 10% discount on a 30% margin gives away a third of the profit on that sale. Volume rarely makes up the difference unless the extra sales are genuinely incremental.
Discount formula
Discounted price = List price × (100 − discount %) ÷ 100
Successive discounts multiply rather than add: 10% then 10% is 19%, not 20%.
How Discount works in practice
Discounts allowed at the time of supply reduce the taxable value on the invoice. Discounts agreed later need a credit note to have the same effect, so ad-hoc post-sale reductions create tax you have already paid on money you never kept.
Worked example
A 15% discount on a ₹1,000 item priced at a 40% margin cuts the profit from ₹400 to ₹250.
Frequently asked questions
Enough to replace the lost contribution. Deep discounts on thin margins usually need multiples of the original volume.