Jun 242019

Treatment of sales promotion scheme under GST

The Central Government vide Circular No. 92/11/2019-GST dated 07th March, 2019 clarified the following issues raised with respect to tax treatment of sales promotion schemes under GST :-

Modes of sales promotion prominent in India are:

  1. Free samples and gifts
  2. Buy one get one free offer
  3. Buy more save more option
  4. Secondary Discount

The treatment of each of above promotional schemes is given below:

Free samples and gifts                                              -> Non GST item

Since the consideration is an important element of the definition supply, therefore the samples which are supplied free of cost, without any consideration, do not qualify as “supply” under GST, except where the activity falls within the ambit of Schedule I of the said Act.

Further, section 17(5)(h) of the said Act clarified that input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples.

However, where the activity of distribution of gifts or free samples falls within the scope of “supply” as per Schedule I of the said Act, the supplier would be eligible to avail of the ITC.

Buy one get one free offer                                        -> GST item

Offers like “Buy One, Get One Free”, one item is being “supplied free of cost” without any consideration. 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.

Taxability of such supply will be dependent upon:

  1. Whether the supply is a composite supply or
  2. Whether the supply is a mixed supply and

The rate of tax shall be determined as per section 8 of the said Act. And, ITC shall be available to the supplier in relation to such supply.

Discounts including ‘Buy more, save more’ offers                          -> Non GST

Discounts offered by the suppliers to customers including staggered discount under „Buy more, save more” scheme and post supply / volume discounts established before or at the time of supply) shall be excluded to determine the value of supply provided they satisfy the parameters laid down in section 15(3) of the said Act, including the reversal of ITC by the recipient of the supply as is attributable to the discount. Further, the supplier shall be entitled to avail the  ITC for such inputs, input services and capital goods used in relation to the supply.

Secondary Discounts                                                            -> Non GST

Value of supply shall not include any discount by way of issuance of credit note(s), except in cases where the provisions contained in section 15(3)(b) of the said Act are satisfied. There is no impact on availability or otherwise of ITC in the hands of supplier.


Financial / commercial credit notes are now well understood and permitted except that output tax adjustment is clearly barred if the conditions of section 15(3) are not satisfied.

Although credit to Supplier is not restricted, there seems to be no mention of effect under rule 37 to Recipient when such financial / commercial credit notes are issued.

Where consideration takes ‘non-monetary form’ whether those samples would be free from tax – Care must be taken to the expression ‘except when liable under schedule I’. Please consider which para might cover disposal of samples and gifts under schedule I. Here, even permanent transfer or disposal of business assets is also covered.

And where credit is reversed on gifts given, very subtly a mention is made that credit reversal required includes capital goods credit also, this is a new one as complexity in computing rule 43 in relation to gifts may be a challenge.