- Treatment of Free Samples and Gifts under GST:
Under Section 7(1)(a) of the Central Goods and Services Act, 2017 (‘CGST Act’), supply includes any transaction undertaken for consideration. Therefore, any items supplied without any consideration would not qualify as “supplies” under the GST law, except when the activity falls within the ambit of Schedule I of the CGST Act.
In business parlance, Free Samples and Gifts are supplied free of cost (without any consideration). Hence, they will not be considered as supplies under GST law.
However, as per Section 17(5)(h) of the CGST Act, Input Tax shall not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Hence, taxpayers should reverse the ITC to the extent of inputs used in relation to Free Samples and Gifts. However, ITC would be available if Free Samples and Gifts are used in relation to activities mentioned in Schedule I of CGST Act.
2. Treatment of Buy One Get One Free offer under GST:
In case of supply of more than one goods, the GST law provides for taxability of the transaction depending on the nature of supplies and transaction. The transaction could be classified either as a mixed supply or composite supply as per Section 8 of the CGST Act.
2.1 Taxability as per Composite supply: Under the GST law, composite supply involves a supply comprising of two or more goods/services, which are naturally bundled and supplied with each other in the ordinary course of business. The supplies are generally sold together as they are inextricably connected to each other. One of the supply in the transaction would be the principal supply. In case of composite supply, the GST rate for the principal supply shall be considered
2.2 Mixed supply: Under the GST law, mixed supply involves supply of a combination of two or more goods/ services made together for a single price. Each of these items could be sold separately and they are not dependent on each other.
In case of mixed supply, the GST rate for the supply attracting highest GST rate shall be considered
2.3 Availability of ITC to the supplier on inputs, input services & capital goods used for such supplies: ITC would be available on goods used in supply of such goods & Input tax credit on such inward supplies will not be reversed.
3. Treatment of Volume Discounts (‘Buy more, save more’ offers) under GST:
In order to incentivise distributors and dealers for increasing the sales volume, businesses offer discounts based on targets, quantity, value, volumes etc. as volume discounts. For example-
Get 10 % discount for purchases above Rs. 5000/-,
20% discount for purchases above Rs. 10,000/- and
30% discount for purchases above Rs. 20,000/-. Such discounts are shown on the invoice itself.
Discounts including Buy more, save more etc. may be provided at the point of supply or at a later date pursuant to prior agreement(s). Discounts provided at the point of sale are shown as a reduction the invoice itself. Discounts provided subsequent to sale are passed through credit notes. The treatment of volume discounts under GST is summarised below:
3.1 Discount provided at the point of supply: Any discount provided at the point of supply shall be excluded from the value of supply. The discount shall be excluded from GST if the conditions prescribed in Section 15(3) of CSGT Act are satisfied. Hence, GST would not be applicable through the discount offered in the invoice.
3.2 Discount provided after the point of supply: Any discount provided through a credit note subsequent to the point of supply shall also be excluded from the value of supply, as per Section 15(3) of CGST Act. In such case, the recipient shall reverse the ITC claimed earlier based on the credit note issued by seller.
3.3 Availability of ITC to the supplier on inputs, input services & capital goods used for such supplies: ITC would be available on goods used in supply of such goods & Input tax credit on such inward supplies will not be reversed.
4. Treatment of Secondary Discounts under GST:
In certain situations, additional discounts are offered subsequent to sale of goods. The discount may be on account of revaluation in the price of goods, return of goods or any deficiencies in goods etc. These discounts are known as secondary discounts or post-sale discount. These discounts are passed through credit notes. The treatment of secondary discounts under GST is summarised below:
4.1 Credit note at the point of supply: As per Section 34(1) of CGST Act, credit notes should be issued only in case of any commercial transaction. Any secondary discount provided subsequent to the point of supply shall not be excluded from the value of supply. Hence, GST would apply even on the ‘discounted portion’ of supply.
4.2 Credit note subsequent to the point of supply: However, if the conditions prescribed in Section 15(3)(b) of CGST Act are fulfilled, the GST on the discount portion may be reversed by issuing a credit note. In such case, the recipient shall reverse the ITC claimed earlier based on the credit note issued by seller.
4.3 Availability of ITC to the supplier on inputs, input services & capital goods used for such supplies: ITC would be available on goods used in supply of such goods & Input tax credit on such inward supplies will not be reversed.