SALES PROMOTION TECHNIQUES – TAXABILITY AND ITC
The Government has issued Circular No. 92/11/2019-GST dated 7th March 2019 where certain aspects with respect to treatment of various sales promotion schemes, their impact on taxable value and input tax credit (ITC) have been clarified.
Four major sales promotion techniques are:
- Free Samples And Gifts
- Buy-One Get-One Free and similar offers
- Discounts including ‘Buy more, save more’ offers
- Post Sale discounts
Free Samples and Gifts – Supply of samples to stockists, dealers etc. without charging any consideration
| Taxable value |
Input Tax Credit
|
|
Free Samples not be treated as supply. Hence, GST is not payable on free samples.
NOTE: If free samples fall within the ambit of Schedule I of CGST Act i.e. deemed supplies even if made without consideration in select cases like supplies to related parties etc., these will be treated as taxable supplies.
|
·
· ITC shall not be available on inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration
· NOTE: ITC available if free samples fall within the ambit of supply (under Schedule I)
|
Buy-One Get-One Free and similar offers: Buy one unit of a product and get the second unit free
OR
Buy one product and get another product free
| Taxable value |
Input Tax Credit
|
|
It is a case of supplying two or more individual supplies where a single price is being charged for the entire supply.
GST is applicable on the actual consideration charged (i.e. single consideration) and applicability of GST rate will be dependent upon as to whether the supply is a composite supply or a mixed supply
|
·
Entire ITC is available for the inputs, input services and capital goods used in relation to such promotional supplies |
Discounts including ‘Buy more, save more’ offers:
Case A: Additional discounts over and above base discount for increased
quantum of purchases. Discount offered on the Invoice itself
Case B: Periodic/ year end discounts by supplier to stockists. Discounts through issuance of credit notes post original supplies
| Taxable value |
Input Tax Credit
|
|
Case A: Discounts offered on invoice shall be excluded to determine the value of supply.
Case B: Discounts offered post sale (through credit notes), are deductible from the taxable turnover and tax adjustment is allowed provided they satisfy the conditions laid down in Section 15(3) of the CGST Act |
·
Case A: ITC would be available on goods supplied and no reversal of ITC would be required.
Case B: No adjustment is required in the ITC of the supplier.
NOTE: The recipient shall reverse the ITC claimed earlier based on the credit note issued by seller. |
Post Sale discounts: The discount may be on account of revaluation in the price of goods, return of goods or any deficiencies in goods etc. These discounts are known as secondary discounts or post-sale discount. These discounts are passed through credit notes.
| Taxable value |
Input Tax Credit
|
|
Secondary discount provided subsequent to the point of supply shall not be excluded from the value of supply. Hence, GST would apply even on the ‘discounted portion’ of supply. |
·
ITC would be available on goods supplied and no reversal of ITC would be required.
NOTE: If the conditions prescribed in Section 15(3)(b) of CGST Act are fulfilled, the GST on the discount portion may be reversed by issuing a credit note. In such case, the recipient shall reverse the ITC claimed earlier based on the credit note issued by seller. |
