Updated on: January 11th, 2024 10:21 AM

Accounting for Sales Promotion under GST

Due to continuous increase in the number of suppliers, there is huge competition prevailing in the market. Due to the competitive market, the suppliers are required to come up with various sales promotion schemes like free samples, discounts etc. with a view to increase their sales volume and also to attract new customers. There is lots of confusion in trade with regard to the applicability of GST on such sales promotion scheme. In order to clear the confusion, the Central Board of Indirect Taxes and Customs, vide circular no. 92/11/2019-GST dated 7^th March, 2019, has clarified tax treatment of various sales promotion schemes and the same is taken up in the present article.

Treatment of Free Sample and Gifts

SUPPLY – The term ‘supply’ is defined under section 7 (1) of the Central Goods and Service Tax Act. As per sub-clause (a) of section 7 (1), supply includes all forms of supply when agreed to be made for a consideration. Thus free sample and gifts which are supplied without any consideration shall not be treated as supply under GST (except the activities mentioned in schedule I). INPUT TAX CREDIT – The provisions of section 17 (5) (h) clearly states that input tax credit (ITC) shall not be available in respect of free sample and gifts. Thus supplier of free sample and gifts will not be able to avail input tax credit in respect of inputs, input services and capital goods to the extent they are used in relation to free sample or gifts supplied without consideration.

Treatment of Buy One Get One Free

SUPPLY – In case of buy one get one free, one product is being supplied free of cost. Actually, in the buy one get one free offer, there is no individual produce being supplied free of cost. In fact, two or more individual products are supplies at a single price. In simple terms, two or more product is supplied at the price of one product. It has been clarified by CBIC in the above referred circular that the taxability of ‘buy one get one free’ supply would be dependent upon the supply being composite supply or mixed supply and rate of tax should be determined as per provisions of section 8 of the Central Goods and Service Tax Act. INPUT TAX CREDIT – Supplier shall be eligible to avail input tax credit of inputs, input services and capital goods which are used in relation to supply of goods or services or both.

Treatment of Discounts

1. Discount in terms of ‘buy more save more’ –

In case of ‘buy more save more’ discount is offered based on the volume say for example 10% discount is offered on the purchase of INR 5000 and above and 20% discount is offered on the purchase of INR 10,000 and above. Such discounts are reflected on the invoice itself. It is clarified that such discount offered shall be excluded to determine the value of supply (provided it satisfies the factors laid down in section 15 (3) of the Central Goods and Service Tax Act, 2017.

2. Periodic / year ending discount to stockiest –

Generally supplier offer periodic / year ending discount like 1% discount on purchase of 10,000 pieces a year and get additional 1% discount on purchase of 15,000 pieces a year. Such discounts are established in terms of the agreement entered into at or before the time of supply. Such discounts are not reflected on the invoice as the percentage of discounts can be determined only after the supply has been effected or at the end of the year. Generally the supplier passes on such discounts through issuance of a credit note. It is clarified that such discount offered shall be excluded to determine the value of supply (provided it satisfies the factors laid down in section 15 (3) of the Central Goods and Service Tax Act, 2017. In respect of Input Tax Credit, it has been clarified that the supplier shall be eligible to avail the input tax credit of inputs, capital goods and input services which is used in relation to the supply of goods or services or both on such discounts.

Treatment of Secondary Discounts

Discount which are not known at the time of supply or discounts which are offered after the supply is over is treated as secondary discounts. Say for example Supplier provides 5000 packets of wafers at INR 10 per packet, afterwards he revises the price to INR 9 per packet. It has been clarified that the financial / commercial credit notes can be issued by the supplier even if the conditions laid down in section 15 (3) (b) of the Central Goods and Service Tax Act, 2017 are not satisfied. Since such discount is not known at the time of supply and also the conditions laid down under section 15 (3) (b) of the Act is not satisfied, the secondary discounts shall not be excluded from the value of supply. In respect of input tax credit, it has been clarified that there is no impact on availability of input tax credit in the hands of the supplier.