Explore the applicability of GST on free samples, Buy One Get One Free offers, and discounts in various industries. Understand how GST is levied on these sales promotion activities, the treatment of ITC, and the impact on value determination. Stay informed to ensure compliance with GST regulations.
In specific types of industries, It is important to know the applicability of GST on Free Samples and Other Sales Promotion activities.
Need to Know How the GST shall Apply on Free Samples
- To sustain in cut-throat competition, industries are trying all possible measures to reach to maximum customers/Distributors/end users. This one of the easiest ways to connect here is to distribute free samples and gifts and promotion goods.
Let us understand how are these samples and gifts and promotions goods are to be taxed?
- Interpretation: GST is levied on supply only. However, when there is no incoming remittance i.e. free of cost supply of sample, how the goods can be taxed?
- Industries are many times provide samples of their products to stockiest, dealers, end users and customers, etc. and does not charge any consideration However, under GST, Section 7(1) of CGST Act, 2017 refers to ‘supply’ which includes ‘all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business’.
- In view of above definition, it is clear that the goods or services that are supplied under free of cost i.e. without any inward remittance should not be treated as ‘supply’ under GST other than activities declared in Schedule-I. With this interpretation, we can say that samples which are supplied free of cost, without any consideration, do not qualify as ‘supply’ under GST.
- However, section 17(5)(h), it is explicitly stated thatInput Tax Credit (ITC) will not be available for goods lost, stolen, destroyed, written off or distributed as gifts or free samples.
Conclusion: if any industry has availed the ITC on procurement of goods and later on Sample is issued, then industry (Supplier) is required to reverse the ITC (if availed) on goods lost, stolen, destroyed, written off or distributed as gifts or free samples.
GST applicability on Buy One Get One Free Offer
- In the current industry and business scenario there is one concept to attract customer is ‘Buy one, get one free”. In such case one item is being supplied free of cost (without any consideration). In view of definition provided above, it excludes activities that do not have a component of monetary consideration.
- However, in such offers, as an Aam Admi, we need to understand that, this is not an individual supply of free goods but, this is a case where two or more individual items supplies are clubbed, and a single price is charged for the entire supply i.e. for single supply. In nutshell, this can be treated as ‘supplying two goods for single price.
- From the above explanation, GST shall be applicable when multiple supplies are clubbed together for a single price. However, the rate of GST may differ depend on the type of supply i.e. mixed supply or composite supply.
Discounts under GST
- Suppliers of Goods and Services commonly offer discounts to customers in order to boost sales. To ensure market sustainability, these discounts are either mentioned on the invoice itself or included in the terms of an agreement made at or before the time of supply.
- The Central Board of Indirect Taxes and Customs (CBIC) has provided clarification that such discounts offered by suppliers to customers should not be considered when determining the value of the supply, provided certain conditions are met.
- The input tax credit (ITC) on inputs, input services, and capital goods used for supplying these discounted goods or services will be available to the supplier.
GST on Secondary Discounts
- The CBIC has clarified that secondary discounts should not be excluded when calculating the value of the supply. In other words, these discounts should not be included in the value of the supply.
- This clarification does not impact the availability or non-availability of ITC in the hands of the supplier.
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Disclaimer :The above given information are nothing but content aligned from various websites, E-mails and updates available with us. In any manner, the above information shall not be construed as legal opinion or authentication of any of statute. This is purely for academic purpose only.
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