Chandu,
You may check the config options to calculate tax (tcode OB69) where you can specify tax base to be net of cash discount, which means the reduced amount after cash discount calculation will be used for tax calculation. In the screenshot below, the tax base net indicator is selected.
Note: If you make the tax base as net, then you may also have to make the discount base as net (which means tax amount not included for cash discount calculation. Makes sense right?)
Select the indicator for the cash discount base to be net (tcode OB70) as shown below.
Hope this helps.
Regards,
MG