GST on Free Samples and Promotional Goods: Return, ITC and Notice Checklist
Free samples and promotional goods are attractive for growth teams but risky for GST. The biggest issue is not only output tax; Section 17(5)(h) specifically blocks ITC on goods disposed of by way of gift or free samples.
Use the GST Refund Route and RFD-01 Checklist to apply these points to your figures or facts.
What the law says about ITC
Section 17(5)(h) blocks input tax credit on goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. This makes free-sample campaigns different from ordinary business purchases, even if the campaign has a clear marketing purpose.
For the connected rule, example or next step, see GST on Employee Recoveries and Notice Pay: Return, ITC and Notice Checklist.
Campaign classification grid
| Campaign item | GST/ITC issue | Control |
|---|---|---|
| Free product sample to customer | ITC block under gift/free sample clause to be reviewed. | Maintain sample issue register and ITC reversal working. |
| Buy-one-get-one/composite pricing campaign | May be pricing/discount issue, not simple free sample. | Keep scheme terms and Section 15 discount analysis. |
| Branded merchandise gifted at event | Gift/free sample ITC block risk. | Track procurement, distribution list and reversal. |
| Demo goods returned to stock | Different from free disposal if inventory returns to business. | Maintain movement/return documentation. |
For the connected rule, example or next step, see GST for Advertising Agencies and Media Buying: Return, ITC and Notice Checklist.
Output tax question
Do not stop at ITC. Check whether the transaction is a supply under Section 7 and whether any consideration, related-party value or bundled consideration exists. For pure free distribution to unrelated persons, the finance memo should still document why output tax is or is not considered, and separately handle blocked ITC.
Notice-ready documentation
- Campaign approval note with business purpose.
- SKU-wise sample issue register.
- Distribution list or event handover record.
- ITC reversal computation referencing Section 17(5)(h).
- Scheme circular for BOGO/discount campaigns, if applicable.
Common mistakes
- Claiming ITC on sample stock because it is “for marketing”.
- No inventory trail for samples removed from warehouse.
- Mixing free samples with discount schemes in one GL.
- Not reversing ITC when promotional goods are written off or gifted.
Official References Used
This draft uses official GST law, rules, GST Council, CBIC/GST portal and government-source material only. Before publishing, re-check whether any notification, circular, rule text or portal workflow has changed after the draft date.
- CBIC Tax Information: CGST Section 7 — scope of supply
- CBIC Tax Information: CGST Section 15 — value of taxable supply and discounts
- CBIC Tax Information: CGST Section 17 — blocked/apportioned ITC
- CBIC Tax Information: CGST Section 16 — input tax credit eligibility
- CBIC Tax Information: CGST Rule 36 — ITC documents
For the connected rule, example or next step, see Schedule I Serial 1 - GST Goods Rate Entry.
Frequently Asked Questions
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- GST & Indirect Tax
- Official starting point
- www.gst.gov.in
Page source links
- CBIC Tax Information: CGST Section 7 — scope of supply
- CBIC Tax Information: CGST Section 15 — value of taxable supply and discounts
- CBIC Tax Information: CGST Section 16 — input tax credit eligibility
- CBIC Tax Information: CGST Section 17 — blocked/apportioned ITC
- GST Council — Central GST Act, Rules, notifications and circulars
- GST Council CGST circulars