Full Guide to GST Eligibility on Free Supplies and Samples

Free Samples would be called the products furnished to consumers to try prior to buying. Furnishing free or sample products would be the tried and tested marketing technique the industries use in India like FMCG, pharmaceuticals, and others.

For instance, Buy 3 and get 1 Soap free or 1 Garment free on buying the 3 Garments or distribution of free samples to distributors, agents, customers, doctors, and others.

At What Course the Product Would be Entitled as a Free Sample?

The below-mentioned are the features that a product must hold to qualify as a free sample:

• a) Distributed at no cost i.e without any consideration.
• b) Are marked NOT FOR SALE and normally no MRP is printed.

GST would be subjected to be applied if the transaction consists of the goods or services supplied for consideration. The goods or services which would be supplied at zero cost or without any consideration could not be drawn under the supply according to Schedule I of the CGST Act, 2017 excluding exercises prescribed on which GST is liable to get levied even when supplied without consideration. Restriction for the input tax credit on the goods disposed of through the method of gift or free samples under Section 17(5)(h) of the CGST Act, 2017. Hence the GST ITC would need to be reversed on the goods circulated as free samples.

On the taxability, the output tax payment along with the claim of the credit to an extent relies, on the time of the supply of these free samples or free supplies. It is been specified below:

Requirement	Output Tax Treatment	Input Tax Credit Treatment
Goods Manufactured as Free Samples and then Distributed	No Output Tax Subject to be Paid	ITC Would Get Reversed
Goods Manufactured as Normal Goods after that Gets Transferred as Free Samples	No Output Tax Subject to be Paid	ITC Would Get Reversed
Goods Manufactured as free Samples and then Distributed to the Concerned Party	Output Tax to be Paid	ITC Permitted
Free Supply i.e. Without any Consideration	No Output tax Subject to be Paid	ITC Would Get Reversed
Offer of Buy One Get One Free	Output Tax to be Levied on Assessable Value	ITC Permitted

Which Activities Would be Treated to be the Supply Despite When the Same Would be Made Exclude Consideration?

Permanent transfer or disposal of business assets in which the ITC would have claimed for these assets. It does not being applied if ITC was not claimed on these assets.

Supply of the goods or the services or dual concerned to the individual or between different individuals as mentioned under section 25 incurred towards the future course of business:

• Via a principal to his agent in which the agent embarks to supply these sorts of goods on the grounds of the principal; or
• Through the agent to his principal where the agent embarks to obtain these goods on the behalf of the principal.

When the agent would be working on the grounds of commission and does not keep goods, there won’t be any requirement to file the GST on the goods however the agents require to release the GST on the commission that has been made.

For the future course of the business the import of the services via the assessee from the concerned individual or from any of his additional establishments outside India.

According to Circular No. 92/11/2019 – GST provided via the CBIC unleashed dated 07th March 2019, specified that any goods or gifts furnished under the category of gifts, samples, along with additional concerned categories without consideration, it will not become categorized as ‘supply’ as per the Act. Therefore, the ITC will not be applicable to those goods.

Through Schedule I specified above, the same could be seen that the supply of the free samples would not come beneath the class of the activities that are to be treated as supply despite when made excluding any consideration.

Where to Show Free Samples & Supplies in GST Returns?

As the free Samples would not be said to be the supplies thus no necessity of revealing them as outward supplies in the returns. The credit concerned to it could be shown in Table 4 of Form GSTR 3B as Ineligible ITC under Section 17(5) or Credit Reversal under “Others” if credit was formerly claimed.