Free goods and GST

There are two cases

1. Product given free on purchase of certain product.
2. Gift where no consideration is collected.(Cash/Bank as well as in Kind)

Let us understand the elements of both :

(A)Businesses follow following sales promotion Techniques:

1. Buy 1 Get 1 Free
2. Buy a combo of these products at Rs. X
3. Buy this product and get that absolutely free
4. Buy these two products and get a following product at a discounted value Rs Y
5. Free Samples are provided.

Now in the cases where the products are provided absolutely free and charged Nil, the input tax Credit of the following product will be reversed if already recorded and not allowed in case of not recorded till date.(As per Sec 17 of CGST Act, 2017).(As in case of point 1, 2, 5 mentioned above)

In case where the combo is charged at a mixed price and nothing is sold by marking as a free and on invoice also charged as a combo without bifurcating the value separately then ITC of all the products are available. (As per Sec 16of CGST Act, 2017).(As in case of Point 2, 4 mentioned above)

(B) Goods Supplied Free of cost i.e. without consideration will be treated as supply in following cases and GST will be applicable.(Gift and still tax in these cases)

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

3. Supply of goods—

(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or

(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

If the goods or Services which are supplied and are excluded from the Schedule I of CGST Act, 2017 then it will not be considered as supply and no GST will be applicable.

Hope You find it Useful.

Source- CGST Act,2017 and FAQs on GST available on CBEC.