Promotional Offers & Free Samples Won’t Attract GST

In a huge relief for FMCG, food, retail chains and pharma companies, the government has clarified that promotional schemes such as buy-one-get-one-free (BOGO) and additional quantity for same price will be eligible for input tax credit.

Companies will not have to pay tax separately on the additional product given unless it is a totally different one facing higher rate of tax. They will not have to reverse input tax credit taken for these.

“Taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined as per the provisions of Section 8 of the said Act,” the circular said.

The clarification follows several representations from the industry on the issue.

A number of companies in the FMCG and pharmaceutical sectors had been served notices by the tax authorities asking them to reverse input tax credit in case of such offers prompting many to drop such schemes.

The circular has clarified that ‘under buy one get one’ scheme, GST would be paid on the price recovered from the customer without reversing the input credit.