Two kinds of "free"
| Offer | GST on the gift | Input tax credit on the gift |
|---|---|---|
| Free gift with an order ("free tote above ₹1,999", "buy one get one") | Covered by the price the customer pays | Kept |
| Gift or sample with no purchase (influencer kits, Diwali hampers to past customers, samples at an event) | None: not a supply | Must be reversed |
The difference is consideration. GST taxes supplies made for consideration (section 7). A gift with no purchase has none; a gift that comes with an order is paid for by the order.
Free gifts with an order
CBIC's Circular 92/11/2019-GST deals with "buy one get one free" and "get one toothbrush free with toothpaste" offers directly. It is "not an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply". So:
- charge GST on the price the customer pays for the order;
- keep the input tax credit on the gift, because it was part of a sale;
- put the gift on the invoice: list it, and either split the price between the items or show the gift at its price with a 100% discount.
If the gift carries a higher rate than the item it comes with (an 18% bag with a 5% kurta), the circular points to section 8: the bundle may be a mixed supply, taxed at the higher rate. Pricing the items separately on the invoice, or checking the offer with your CA before it runs, avoids an 18% bill on a 5% sale.
Gifts and samples given away
Influencer kits, free samples, Diwali boxes to customers who are not buying anything: these are not supplies, because nothing is paid (Circular 92/11/2019-GST, para A). There is no invoice and no GST on them.
But the credit goes. Section 17(5)(h) blocks input tax credit on goods "disposed of by way of gift or free samples". If you claimed credit when you bought the stock, reverse it in GSTR-3B (Table 4(B)) in the month the goods go out as gifts. Keep a delivery challan or an internal note for each consignment so the movement is on record.
Gifts to employees
A gift worth up to ₹50,000 in a financial year from an employer to an employee is not treated as a supply (Schedule I to the CGST Act), and the credit on it is blocked like any other gift. Above that, it is a supply between related persons: it is taxed even though nothing is paid, and the credit follows the tax.
Gifts to related businesses
Goods sent free to a related person or to your own registration in another state are supplies under Schedule I even without payment, valued under the valuation rules. Credit is kept in that case, because tax is paid on the transfer.
A festive-season checklist
- For gift-with-purchase offers, make sure the gift appears on the invoice.
- Check the gift's rate against the products it comes with.
- For giveaways and influencer kits, reverse the credit in the month they go out.
- Keep a challan or record for every free consignment.