Promotional offers: Govt clears the air on levy of GST

In a major relief to manufacturers, distributors, marketers and direct sellers of consumer products, the government on Thursday clarified the extent of tax liability and the eligibility of input tax credit on promotional offers such as free samples and “buy one, get one free”.

Industry players were apprehensive about increased litigation from tax audit authorities if they marketed their products as free, because of ambiguity on such offers. Now, the notification by the Central Board of Indirect Taxes and Customs makes it clear that tax would be applicable and input tax credit would be available for the entire package sold, including the free items.

Experts said the clarification will bring ease of marketing and save litigation troubles for the industry, but most importantly for the FMCG and pharma sectors where such offers are common.

In the case of free samples, such as the ones medical representatives of pharma companies provide to doctors, they would not be considered as supply, and would not attract tax.

For offers such as a discount of 10 per cent for a purchase of more than ~1,000 and of 20 per cent for a purchase of more than ~2,000, the discounted amount would be excluded to determine the value of supply. Such discounts are generally passed on by the supplier through credit notes.