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GST on gifts, offers, free samples, buy one get one scheme...

The current article clarifies the position of Goods and Services Tax (GST) applicability and Input Tax Credit (ITC) availability in the case of gifts, sales promotion items etc.

Treatment of gifts under GST-

GST law doesn’t define the term ‘Gifts’. The term ‘Gift’ as per the Gift Tax Act means voluntary transfer of any existing movable/ immovable property by one person to another without consideration in money/ money’s worth.

Coming to the treatment of gifts under GST, firstly we need to understand the taxable event in GST. Basically, a taxable event in GST is the supply of goods or services. The main features of the term ‘supply’ as covered under section 7(1) of the CGST Act is highlighted hereunder-

  • The term ‘supply’ covers all the forms of supply when made for a consideration;
  • Supply should be made in the course or furtherance of the business;
  • Supply includes the activities as specified under Schedule I when made without consideration.

From the above we can easily conclude that since ‘gift’ is supplied without consideration we will have to refer to Schedule I. Entry 2 to Schedule I clearly states that any supply of goods/ services between related persons or distinct persons as per section 25 made in the course or furtherance of business will be treated as supply under GST.

Notably, entry 2 to Schedule I states that gifts given by an employer to an employee up to the value of INR 50,000 will not be treated as supply.

Accordingly, the applicability of GST on the gifts is as under-

Particulars

Applicability of GST

Gift from employer to employee up to INR 50,000

GST is not payable as the same is not supply.

Any other gift made in the course or furtherance of business

GST is payable only if covered within entry 2 to Schedule I

Now, comes the question of the availability of ‘Input Tax Credit’ of input/ input services/ capital goods used for supply of gift will definitely arise. Provisions of section 17(5)(h) clearly block the availment of an input tax credit of goods disposed of by way of gift. Hence, the availability of input tax credit vis-à-vis gift will be as under-

Particulars

Availability of ITC

Gift from employer to employee up to INR 50,000

ITC is not available in terms of provisions of section 17(5)(h) since the same will not be treated as supply under GST.

Gift covered within the scope of Schedule I

ITC on the same will be available since it is treated as supply and GST is paid on the supply of the gift.

Any other gift

ITC is not available in terms of provisions of section 17(5)(h) since the same will not be treated as supply under GST.

Circular no. 92/11/2019-GST dated 7th March 2019 clarifies both the above criteria i.e. supply and ITC vis-à-vis gifts.

Treatment of sales promotional items under GST-

Sales promotion is one of the fundamental elements of the promotional mix. It is a type of marketing aimed either or both at the consumer or distribution channel.

Different types of companies are involved in different types of sales promotion schemes like offering various types of discounts; buy one get one free offer; buy more save more offers etc. GST law directly doesn’t cover all the sales promotional schemes.

However, as per provision of section 15(3) of the CGST Act, the value of supply will not include-

  • Any discount which is given before/ at the time of supply. Such discount should have been duly reflected in the invoice issued.
  • Any discount which is offered after supply. However, such discount is established in terms of an agreement which is entered into at/ before the time of supply and attributable ITC is reversed by the service receiver.

The above provisions cover only some of the discounts offered, however, no explicit provisions are there in the GST law for various other sales promotional schemes.

Circular no. 92/11/2019-GST dated 7th March 2019 has clarified the position of some of the sales promotional schemes. The same is explained hereunder-

1. Buy one get one free offer-

As the name itself says it all, buy one get one free means if the customer buys one product, one more of the same product will be given for free.

Any supply made free of cost (i.e., without consideration) will not attract GST. However, under the ‘buy one get one free’ offer, two products are given at the price of one. In nut-shell, there is a supply of two products at the price of one. Hence in such a situation, GST liability will be analyzed as under-

  • The supply will be determined in terms of composite supply or mixed supply;
  • GST rate will be determined as per the provisions of section 8 of the CGST Act.

Now, coming to the availability of ITC, the referred circular clarifies that ITC of inputs/ input services/ capital goods used for supply such goods/ services will be available.

2. Buy more save more offer-

Here, an offer can be of the following two types-

Types of offer

Example

Description of the offer

Increase in discount with the increase in purchase volume

10% discount on purchase above INR 5000,

20% discount on purchase above INR 10,000, and

30% discount on purchase above INR 20,000.

Such a discount is reflected on the invoice.

Periodic/ year ending discounts

Additional 1% discount on purchasing 10,000 pieces per year;

Additional 2% discount on purchasing 15,000 pieces per year.

Such discounts are established in terms of the agreement entered into at/ before the time of supply.

Such discounts are generally not reflected on the invoice. However, the discounts are passed on through credit notes.

It is clarified vide the above referred circular that in terms of section 15(3), the value of supply will not include the value of the discount. However, all the conditions laid down under section 15(3) needs to be satisfied.

Further, with respect to the availability of ITC, it is clarified that the supplier will be eligible to avail ITC of input/ input services/ capital goods used in the supply of such goods/ services.

3. Secondary discounts-

A secondary discount is generally offered after the sale, by way of reducing the price of the product. Since offered subsequently, the supplier will issue a credit note for the discount value.

The circular clarifies that such a discount doesn’t satisfy the conditions laid down under section 15(3) of the CGST Act. Accordingly, the discount value will not be excluded from the value of supply.


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Author:

CA Poonam Gandhi


Jul 8, 2021

Comments


Nice presentation sir
By: V M Sankar Sah | Dt: Jul 8, 2021
nice explanation
By: M P Chenna Reddy | Dt: Jul 12, 2021


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