Do you know how are free samples treated under GST?. If not then, you must read this. Thus, after going through this article you will able to make GST invoice for free samples to send it to your customer.
Further, you will learn how the valuation of free samples under GST to be done. This includes, GST on free samples of medicines, buy one get one free offer samples, etc. Thus you learn the concept of taxability of free supplies under GST. Let us see them one by one.
During the regular course of business, the taxable person undertakes various promotion schemes to increase the sales volume. Thus, he can attract new customers by issuing free samples of his products.
Now the question arises whether free samples are taxable or not. If yes how the valuation takes place for such free samples. Whether input tax credit is available to the supplier on such goods.
Issue of free samples and Gifts
Issuing free samples is a regular practice in trade and industry, namely pharmaceutical company’s who always provide their drug samples to the stockist, dealers, medical practitioners,
Are free samples come under Supply concept?
“According to the sub-clause (a) of sub-section (1) of section 7 of the CGST Act 2017, the expression “supply” includes all forms of supply of goods or services or both. Thus it includes sale, transfer, barter, exchange, licen
Therefore, the supplier of goods or services or both who supplies these as free of cost without taking any consideration is not treated as „supply‟ under GST. However, it should not include the activities mentioned in Schedule I of CGST ACT.
Whether ITC is available on free samples
According to the clause (h) of sub-section (5) of section 17 of the CGST Act, ITC is not available for goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
Therefore, the input tax credit is not available to the supplier on the inputs, input services,
Therefore, if you make an export of free samples under GST then you may need to reverse the ITC availed on such samples. Similarly, since ITC is not applicable for such free sample, you may need to reverse all such ITC, against you produce such samples meant for free distribution.
Buy one get one free offer concept
Various companies announce free offers like ‘Buy One, Get One free. ‟ For example, “buy one talcum powder and get one comb free” or “Get one toothbrush completely free with 250gm toothpaste”.
we know that goods or services or both supplied free of cost are not considered as supply except in the case of activities in Schedule 1.
Initially, it looks like in case of offers like „Buy One, Get One Free‟, one item is being „supplied free of cost‟ without any consideration.
But in actual, it is not an individual supply of free goods or services but a case of two or more individual supplies. where a single price is being charged for the entire supply. Thus, we can say supplying two goods for the price of one.
In fact, it is not an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply. It can at best be treated as supplying two goods for the price of one.
Therefore, this case applies the concept of composite supply or mixed supply. Thus, if the goods or services are supplied as per composite supply then the supplier shall include the other cost in the principle item. On the other hand, if this is a mixed supply, then the supplier can invoice customer individually and charge as individual items.
Thus, there is nothing free in actual in this concept. The supplier must include all costs of the entire package or single free item while supplying to the customer and pay the tax.
Is input tax credit available for buy one get one free scheme
Yes, the ITC is available to the supplier on inputs, input services and capital goods used in relation to manufacturing buy one get
Invoice of Free samples
Since the free samples and Gifts are not coming under preview of supply, The supplier need not have to make the
There is no free sample invoice format under GST as such. Thus, In the second case i.e “Buy one get one free offer concept” the supplier can use regular GST invoice format for invoicing such goods or services or both.
Reference: Circular No. 92/11/2019-GST dt.07.03.2019
What is the tax treatment for distributing material as free supply?
In terms of section 17(4)(f), supplier shall reverse ITC on the material supplied free of charge.
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