Turnover Discount (TOD): Meaning, Agreement Structure and Settlement
TOD is a periodic discount earned on total purchase turnover, usually slabbed and settled by credit note — governed by the agreement, not by statute.
In short
A turnover discount (TOD) is an annual or periodic discount a distributor earns on total purchase turnover — usually slabbed, computed after the period closes, and settled by credit note. There is no statutory definition: TOD is trade parlance, governed entirely by the agreement. That is why the clauses matter — and why whether the TOD was agreed in writing BEFORE the period decides its GST route. This is general information, not tax advice.
TOD may be the most-used and least-defined term in Indian trade schemes. This article gives it the definition, the agreement anatomy, and the settlement mechanics — because no statute defines a turnover discount; everything about it lives in the agreement you write.
What a TOD is (and is not)
A turnover discount rewards total purchase value over a period — usually slabbed, computed after close, settled by credit note. It differs from its neighbours:
| Instrument | Earned on | When given | Typical document |
|---|---|---|---|
| On-invoice discount | The invoice itself | At billing | Price on invoice |
| QPS | Quantity/value of specific products | Post-period | Credit note |
| TOD | Total turnover, all qualifying purchases | Post-period (quarterly/annual) | Credit note |
| Target incentive | Achieving a set target | Post-period | Credit note |
The QPS explainer covers its sibling; the trade-scheme taxonomy maps the whole family.
The clauses that decide everything
Because TOD is contractual, disputes trace to missing clauses. The agreement (or the pre-period circular) should state:
- Period and eligibility — which purchases count; paid invoices only or all billed; net of returns.
- Slabs and the cliff-vs-marginal rule — the most disputed point (see FAQ for the ₹1,00,000 difference on the same numbers).
- Computation base — gross invoice value, net of GST, or net of other discounts. One choice, stated.
- Exclusions — returns, cancellations, non-qualifying SKUs.
- Pre-agreement evidence — in writing, at or before the period start. This single clause decides the GST route (next section).
- Settlement instrument and timeline — which credit note, within how many days of close.
- Documentation and dispute window — what the distributor submits, how long each side has to query.
The downloadable checklist above carries all ten clauses in template form.
The GST fork: pre-agreed or not
Under Section 15(3)(b) of the CGST Act, a post-supply discount can reduce taxable value only if it was established in an agreement at or before the supply, is linked to specific invoices, and the recipient reverses proportionate ITC — and since 1 October 2025 the Finance Act 2025 makes the supplier's tax reduction statutorily conditional on that reversal. A TOD that satisfies all of this can settle by GST credit note within the Section 34(2) window.
A year-end TOD that was not pre-agreed fails the first condition — and per CBIC Circular 251/08/2025-GST, the route is a commercial credit note, with no ITC reversal by the dealer. The full fact pattern is worked through in Section 15(3)(b) and post-supply discounts, and the two documents are compared in financial vs tax credit notes.
Settlement mechanics that prevent disputes
Freeze the turnover data at period close; share the computation (turnover, slab applied, base, exclusions) with the distributor before issuing the note; settle within the stated timeline; and reconcile the credit note into both ledgers. Companies running several slabbed schemes concurrently usually find the computation — not the intent — is what breaks; that is the job scheme settlement software exists to do.
This is general information, not tax advice — structure your TOD clauses with your CA.
A turnover discount is one step down from list price, and it rarely travels alone. Placing it alongside every other deduction — on-invoice, off-invoice and claimed — is what a gross-to-net waterfall does.
Frequently asked questions
What does TOD mean in FMCG and distribution?
TOD stands for turnover discount — a discount earned on the total value of purchases over a period (usually a quarter or year), as distinct from an on-invoice discount given at billing or a QPS tied to quantities of specific products. It typically uses slabs: cross a higher turnover threshold, earn a higher rate.
Is TOD calculated on the whole turnover or per slab?
Whichever the agreement says — and this is the single most disputed computational point. 'Whole turnover' (cliff) applies the achieved slab's rate to the entire period turnover; 'marginal' applies each slab's rate only to the turnover within that slab. On ₹1.2 crore with slabs at 1% to ₹1 crore and 2% above, cliff pays ₹2,40,000 and marginal pays ₹1,40,000 — the clause must state which.
How is a TOD settled?
By credit note after the period closes, against a turnover statement both sides accept. Which credit note — GST or commercial — depends on whether the TOD satisfies Section 15(3)(b): agreed at or before supply, linked to invoices, with the recipient reversing proportionate ITC. A year-end TOD not pre-agreed takes the commercial route per CBIC Circular 251/08/2025, with no ITC reversal by the dealer.
Does TDS apply to a TOD?
Documented as a discount and settled by credit note, a TOD attracts neither 194R (CBDT Circular 12/2022 exempts discounts and rebates) nor 194H (it is a discount, not commission). The trap is paying it as a cash payout, which can be read as commission — our TDS-on-TOD article covers the distinction. Confirm with your CA.
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