GST Impact on Free Samples, Promotional offers are very common in today’s competitive world to attract customers. Distribution of free samples is one of the sales strategies to woo the customers for buying the products. the term ‘free supply’ is not defined under GST law, a ‘free supply’ in general sense, means a supply of goods or services without consideration. Under GST law, the incidence of the tax is ‘supply’. The term ‘supply’ has been defined in an inclusive manner under Section 7 of the CGST Act. The term ‘supply’ as defined under Section 7 of CGST Act, 2017, includes all forms of supply such as sale, transfers, exchanges, barters etc. made or agreed to be made for a consideration in the course or furtherance of business. GST Impact on Free Samples
Provisions Related to Free Sample and Promotional offers
Section 7(1) of CGST Act- Meaning of Supply:
(a) supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business
(c) the activities specified in Schedule I, made or agreed to be made ” without a consideration”Schedule I – Activities to be treated as Supply even without consideration:
i. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
ii. The Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business
Provided gifts exceeding Rs. 50,000 by an employer to an employee in a financial year shall not be treated as supply.
GST Impact on Free Samples
The Supply of goods
a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal;
b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
iv. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business. GST Impact on Free Samples
section 15 (1) of CGST Act –
“The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply”
Section 17(5) of CGST Act, 2017 –
Input tax credit shall not be available in respect of ”
(h) Goods lost, stolen, destroyed, written off for disposed of by way of gift or free samples”
Since free samples are distributed without consideration and the recipient is not either related or distinct person, therefore, free samples shall not be chargeable to GST.
Input tax credit in respect of such free samples shall not be available