We sell beverages. As a part of the process, parties use some bottles as a sample and later raise a debit note. What is the right way to treating a sample sale in GST?
15 Replies
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 05 July 2020
If you are giving a sample, you will pay gst on your purchase of beverage to your supplier. You cannot charge Gst on the Customer because you did not legally make a sale. You have the right to distribute goods for free.
chethan data
(298 Points)
Replied 05 July 2020
Sample sales is not any implications in gst because not considered as supply definition section 7 cgst even falling under negative list and sample sales is ur sales promotion
Vijeesh Parapattil
(105 Points)
Replied 05 July 2020
How we treat free samples of 5 sanitizers in accounts??
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 05 July 2020
@ VIJEESH I don’t think Provisioning is required. This is also a kind of internally generated goodwill- improving business relationships and this must be written off as an expense. If you sold 100 sanitizers at 10₹ and gave additional five as sample, then the following entries will be sufficient
Cash a/c 1,000₹
To Sales revenue 1,000₹
Loss on distributing samples 50₹
To Inventory 50₹
This decrease in inventory will impact COGS.
The internet version is different here,
Distribution expenses 50₹
To Purchases 50₹
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 05 July 2020
@ VIJEESH
I just now went through IndAS 2 inventory and found out that inventory write down and cause of it should be disclosed. Eg. Sales= 1 lakh, Purchases= 5,000₹, Opening inventory= 10,000₹ and Closing inventory= 5,000₹
Sales revenue - COS= Gross profit
So did little calculations on excel and COS= (10,000+5000 purchases-5,000 closing inventory=10,000₹
Gross profit= 1,00,000₹-10,000₹=90,000₹
if you give away five sanitizers, and decrease the purchases by 50₹, the gross profit will be 90,050₹.
But if you decrease the inventory (write off) instead of purchases, the gross profit is 89,950₹. So, both Purchases and Inventory should be reduced in order to get the right amount of operating profit 89,950₹
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 05 July 2020
Yes. Sometimes it could be confusing because there will be different versions. So just follow this
SPLOCI-PL a/c
To Inventory a/c
To purchases
Ravi SADhiyan
(Practice)
(4510 Points)
Replied 05 July 2020
On Sample sale not take ITC
then you give sample without GST
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 05 July 2020
@ Ravi, I don’t know gst adjustment entries. Calculations are fine, debit taxes payables.
I’m not sure about the tax laws applicable for loss on purchases gst. Don’t think they are available online.
Pankaj Rawat
(GST Practitioner)
(55052 Points)
Replied 06 July 2020
There are 2 condition in which Free goods can be supplied :
1. Free Samples:
As per Section 7 of CGST Act samples which are supplied free of cost without any consideration, do NOT qualify as „supply‟ Under GST except where the activity falls within the ambit of Schedule I of the said Act.(Supply between related or Distinct person)
AND As per Section 17(5) the ITC on free supplied goods need to be reversed.
2. Buy one get One Free:
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. It can at best be treated as supplying two goods for the price of
one.
Taxability of such supply will be dependent upon as to whether the supply is a Composite supply or a mixed supply and the rate of tax shall be determined as per the provision of Section 8 .
(More explanation kindly Refer Circular 92/11/2019)
1. Free Samples:
As per Section 7 of CGST Act samples which are supplied free of cost without any consideration, do NOT qualify as „supply‟ Under GST except where the activity falls within the ambit of Schedule I of the said Act.(Supply between related or Distinct person)
AND As per Section 17(5) the ITC on free supplied goods need to be reversed.
2. Buy one get One Free:
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. It can at best be treated as supplying two goods for the price of
one.
Taxability of such supply will be dependent upon as to whether the supply is a Composite supply or a mixed supply and the rate of tax shall be determined as per the provision of Section 8 .
(More explanation kindly Refer Circular 92/11/2019)
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