The law review panel of officers of the GST Council has recommended in its report that GST on freebies should be removed. Tax should be applicable to the gross value of such goods with the availability of input credit of tax, added the report presented by the committee. The matter is under consideration and the final decision would likely be made by the Council in its upcoming meeting, says an official.
If the decision is made in the favour of freebies, there will be no GST on free samples, more quantity for the same price, buy one get one free and other similar marketing schemes offered by the FMCG, Textile industry, pharmaceuticals and food and retail chains. These schemes along with freebies offered by these companies had become taxable after the implementation of goods & services tax (GST) system last year.
Even though the dealer is offering one item free with the another, GST should be applicable only to the actual price the consumer is paying and not on the MRP (Maximum Retail Price) or any other value. Also, the input credit should be available for the entire price paid (of both items) by the consumer. The committee recommended that the input credit should be given on free gifts and samples as well if their annual value does not exceed 0.5% of the total turnover.
Freebie offers such as buy-one-get-one-free are quite popular among consumers of FMCG and other products. These offers were, however, stopped by the companies after the implementation of GST last year. As freebies and samples are under the GST ambit, pharmaceutical companies that provide free samples to their distributors have been getting notices from the tax department.
Ideally, input credit should be given on all products, even if the goods are being provided for free or as a sample by the dealer. The cost of freebies is already factored by the dealers in the selling price of the product on which GST is paid. Therefore, these supplies are eligible for input credits, said PwC India’s Indirect Taxes Leader Prateek Jain.
