Freebies may be freed of GST payment burden
Buy one and get one, free samples and additional quantities for the same price — the mainstay of marketing for FMCG, pharmaceutical and textile companies and food and retail chains — may no longer be taxed. Tax authorities had sent notices to companies in these sectors that had offered such freebies, which had become taxable after the goods and services tax was rolled out last year.
A panel of officials under the GST Council, the decision-making body of the tax, has favoured doing away with GST on freebies. The final call on the issue will be taken by the Council, a government official told ET.
The Law Review Committee said in a report submitted to the Council that the total consideration paid for such goods should be chargeable to GST and input tax credit should not be denied in such cases.
Essentially, the price paid by the consumer for the goods would be considered for the levy of GST, even though one item may have free with another. By that logic, the input taxes on both items would be available to be set off against the final tax.
Also, an annual value cap may be fixed at 0.5% of turnover, according to the report seen by ET. Promotional schemes such as buy-one-get-one-free are very popular, but some companies axed them after the GST regime came into force in July last year.
Some others continued to get calls from the tax department, especially drug companies, which are known to distribute free samples to medical practitioners.
“Ideally, there should not be any restriction of input credit as long as the goods given free of cost or samples are for business purposes. From a business standpoint, the cost of all such items are already factored in the sale price of products on which GST is paid,” said Pratik Jain, indirect taxes leader at PwC. “In fact, on schemes like buy one get one, the industry was hoping for a positive clarification by the sector committee which was constituted earlier.” which was constituted earlier.” which was constituted earlier.”