This circular provides clarification on the GST implications of various sales promotion schemes commonly adopted by businesses, with specific guidance on taxability, valuation and availability of input tax credit (ITC).

The circular clarifies that free samples and gifts distributed without any consideration do not constitute a “supply” under GST, except where covered under Schedule I. Accordingly, no GST is payable on such free supplies. However, ITC is not available on goods, services or capital goods used for providing free samples or gifts, as specifically restricted under section 17(5) of the CGST Act.

In cases of “Buy One Get One Free” or similar offers, the circular explains that such transactions are not free supplies but constitute two or more supplies made for a single consideration. The taxability depends on whether the transaction qualifies as a composite supply or a mixed supply, and tax is payable accordingly. ITC remains available on inputs and input services used for such supplies.

With respect to discounts, including “Buy more, save more” schemes and volume or year-end discounts, it is clarified that discounts agreed upon before or at the time of supply and meeting the conditions of section 15(3) can be excluded from the value of supply, subject to proportionate reversal of ITC by the recipient. ITC is fully available to the supplier on such discounted supplies.

Secondary discounts offered after supply, which are not known at the time of supply, may be passed on through financial or commercial credit notes. However, such discounts cannot reduce the taxable value and do not require ITC reversal by the supplier.

These clarifications aim to bring uniformity and certainty in the GST treatment of sales promotion schemes.