Introduction
Buy One Get One Free (BOGO) is a popular promotional strategy. Unlike free samples, BOGO offers involve a single price for two or more items. The question arises: How is GST applied to BOGO offers?
The CBIC Circular No. 92/11/2019-GST provides clarity on the treatment of BOGO offers under GST.
This guide explains the legal framework, the circular's clarifications, and the ITC implications.
Legal Framework: Circular No. 92/11/2019-GST
BOGO Not a Free Supply
The circular clarifies that BOGO offers are not individual supplies of free goods. Instead, they are a case of two or more individual supplies where a single price is being charged for the entire supply.
Taxability of BOGO
The taxability of BOGO supplies depends on whether the supply is a composite supply or a mixed supply. The rate of tax shall be determined as per Section 8 of the CGST Act.
- Composite Supply: Taxed at the rate of the principal supply.
- Mixed Supply: Taxed at the highest rate.
ITC on BOGO
The supplier can claim full ITC on the goods supplied under the BOGO offer. The value of the free goods is considered to be inbuilt in the price of the originally supplied goods.
Practical Implications
- Single Price: The price charged for the paid item covers the cost of the free item.
- GST on Full Value: GST is payable on the full transaction value.
- No ITC Reversal: Unlike free samples, ITC on BOGO goods is not required to be reversed.
- Invoice Disclosure: The invoice should reflect the BOGO offer clearly.
Documentation Required
- Tax Invoice: Invoice reflecting the BOGO offer.
- Promotional Scheme Document: Documentation of the BOGO scheme.
- Stock Records: Records of goods supplied under the scheme.
Best Practices
- Do Not Treat as Free Samples: Do not treat BOGO free items as free samples for ITC purposes.
- Claim Full ITC: Claim full ITC on the goods supplied under BOGO.
- Document the Scheme: Maintain records of the BOGO promotional scheme.
- Determine Composite or Mixed Supply: Assess whether the BOGO offer is a composite or mixed supply.
- Seek Professional Assistance: For complex BOGO offers, seek guidance.
Conclusion
BOGO offers are not treated as free supplies. The supplier can claim full ITC, and the value of the free goods is considered inbuilt in the price of the paid goods. The tax rate is determined based on whether the supply is a composite or mixed supply.
Running a BOGO offer? Anuj Desai & Associates provides expert guidance on GST treatment and ITC. Contact us today.
Contact us:
- Email: office@anujdesaiassociates.com
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