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FoC sales in GST

20 October 2021

good day to all,

Need to know how to manage FOC (free of cost) sale in gst.
should we reverse the itc for that or pay tax as sales.
if pay as tax as sale what should be sales price we have to show in gst as this is we giving free?

please refer any GST section or notification too.

Regards

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3 Replies

akshay Kumar (137 Points)
Replied 20 October 2021

No need to pay gst on free supply and no need to reverse the ITC.

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NITIN SAKPAL (Deputy Manager - Indirect Taxation) (145 Points)
Replied 24 November 2021

In the case of goods supplied as free samples to customers or physicians (in the pharmaceutical sector), the law under Section 17(5)(h) of CGST Act is clear as they are free samples thus ITC shall be reversed. The rationale behind this provision is that these samples are free and have zero value attached to it, on which no tax can be levied and hence, no credit shall be provided. Further, no output liability would arose on such transfer.

Other marketing schemes such as buy one, get one free or buy more and save more are used by various business to boost its sales. CBIC’s FAQ clarifies the charge on GST on such free supplies. It states that the value of free good is to be considered as trade discount where offering two goods at the same price is equal to offering one good at 50% discount. Thus, the invoice value would include both goods and GST will be charged on the invoice value of supply. Therefore, need for reversing the ITC under Section 17 will not arise in such a situation. Further, such goods are considered as supplies and not gifts as they are given for free to incentivize buyers to buy goods of the company and thus, ITC can be claimed on it.