GST on Free Samples from Suppliers: Should They Be Reported in GST Returns?
GST on Free Samples: An Overview
Free samples are an integral part of marketing and business
promotion activities. Suppliers to create awareness, build customer
relationships, and boost product sales by distributing them. These samples are
usually given without any monetary consideration, raising the question: How
does GST on Free Samples from Suppliers treat these transactions?
1. Taxability of Free Samples
Under the GST regime, the supply of goods without
consideration is generally not subject to tax, unless it falls under the
specific cases mentioned in Schedule I of the GST Act. One such case includes
the supply of goods between related parties or distinct persons, even if it is
made without consideration.
In the context of free samples, however, there is usually no
sale, and therefore no direct transaction between the supplier and the
recipient. As a result, there may be no direct GST liability on the recipient
(your business) of the free samples, provided these are genuinely promotional
and involve no barter or reciprocal arrangement.
However, suppliers distributing free samples might face GST
implications, especially concerning input tax credit (ITC), as they cannot
claim ITC on the goods given away for free.
2. Input Tax Credit (ITC) and Free Samples
One of the key provisions in GST is the claiming of Input
Tax Credit (ITC), which means allows businesses to reduce of tax liability by
claiming a credit for the GST paid on such purchases used in their day by day operations.
However, ITC cannot be availed/claimed on goods that are disposed of by way of
gifts or free samples, as per Section 17(5)(h) of the CGST Act.
This means that if a supplier of goods provides free samples
to a any business, the supplier will not be eligible/able to claim ITC on those
goods. As a recipient, you won’t have any GST credit to claim for the free
samples, either.
GST Returns: Should Free Samples Be Included?
The question now arises: Should free samples received from
suppliers be included in GST returns? Let’s break this down.
1. Free Samples as Non-Taxable Supplies
Since the samples received are not a taxable supply from
your perspective, they do not need to be reflected in your GST returns under
the section for taxable supplies. In simple terms, you are not required to pay
GST on the free samples, nor can you claim any ITC. Therefore, the samples
would not appear under either the outward supplies (sales) or the inward
supplies (purchases) sections of your GST returns.
2. Accounting for Free Samples
From an accounting perspective, however, it is important to
maintain records of the free samples received. While they do not have a direct
impact on GST filings, they may be part of your inventory or promotional
expenses, which need to be recorded for financial reporting purposes.
3. Impact on GST Compliance
Even though the receipt of free samples does not directly
impact your GST return, it’s crucial to ensure that your supplier is aware of
their tax liability when distributing free samples. Suppliers must account for
the tax implications on their end, especially in relation to ITC restrictions.
Conclusion: Are Free Samples a Part of GST Returns?
In conclusion, free samples received from suppliers do not
need to be included in GST returns, as there is no tax liability on the
recipient side. However, the supplier of the samples has to consider the
implications of providing goods without consideration, particularly with regard
to Input Tax Credit.
While the recipient business does not face direct GST
compliance challenges concerning free samples, it’s essential to keep proper
records for internal accounting and ensure the supplier is managing their tax
obligations correctly.