Introduction
Samples sent to dealers without consideration are a common marketing practice. The question arises: How are free samples treated under GST?
The answer is that free samples are not treated as supply, but ITC on the samples must be reversed under Section 17(5)(h). This guide explains the legal framework and the CBIC circular.
Legal Framework: Section 17(5)(h) of the CGST Act, 2017
Blocked Credit on Free Samples
Section 17(5)(h) blocks ITC on goods disposed of by way of gift or free samples.
Circular No. 92/11/2019-GST
The CBIC Circular No. 92/11/2019-GST clarified that samples supplied free of cost, without any consideration, do not qualify as 'supply' under GST, except where the activity falls within Schedule I.
ITC Reversal
The circular 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 distributed without any consideration.
Documentation Requirements
- Sample Distribution Register: Record of all free samples distributed.
- Board Resolution: Approval for the sample distribution programme.
- Reversal Calculation: Computation of the ITC to be reversed.
- GSTR-3B Disclosure: Disclosure of the reversal.
Best Practices
- Reverse ITC: Reverse ITC on all free samples distributed.
- Maintain Records: Document the sample distribution programme.
- Report in GSTR-3B: Disclose the ITC reversal in GSTR-3B.
- Seek Professional Assistance: Where the sample programme is significant, seek guidance.
Conclusion
Free samples sent to dealers without consideration are not treated as supply. ITC on the samples must be reversed under Section 17(5)(h). Proper documentation is essential.
Distributing free samples to dealers? Anuj Desai & Associates provides expert guidance on ITC reversal. Contact us today.
Contact us:
- Email: office@anujdesaiassociates.com
- Phone: 9619456656
- Website: https://anujdesaiassociates.com
- LinkedIn: linkedin.com/in/ca-anuj-desai-122547230