GST
GST on free samples and promotional goods: ITC, output tax and evidence
Free samples and promotional goods are not just marketing spend. GST treatment turns on whether there is a supply, whether consideration exists, whether related-party/deemed-supply rules apply, and whether section 17(5)(h) blocks ITC.
Primary source trail
Use sections 7, 15, 16 and 17(5), the CGST Rules and product-specific rate entries. Campaign documentation matters.
Free sample
Goods disposed of as free samples can trigger blocked ITC under section 17(5)(h).
Gift or business promotion
Commercial purpose does not automatically preserve ITC if the statutory block applies.
Related party
Supply to related or distinct persons may be treated differently from public promotional distribution.
Documentation
Campaign approval, stock issue, recipient list and tax note should be retained.
Bare law and source decode
- Section 17(5)(h) blocks ITC on goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
- Section 7 and Schedule I can matter where goods move to related or distinct persons without consideration.
- Valuation under section 15 becomes relevant if the transaction is a taxable supply rather than a pure free distribution.
- Promotional schemes involving buy-one-get-one, discount, credit note or bundled supply require separate analysis.
- Output-tax and ITC treatment should be tied to inventory movement and campaign records.
Workflow
Classify the scheme: free sample, gift, discount, bundled offer, replacement, warranty, CSR or dealer incentive.
Identify whether consideration exists directly or indirectly.
Check related-party/distinct-person status and Schedule I exposure.
Compute ITC block or output tax as applicable and map to stock records.
Preserve campaign approval, recipient list, dispatch proof, invoice/delivery challan and tax working.
Practical examples
- A pharma company sends free doctor samples. ITC block under section 17(5)(h) should be tested and stock issue evidence retained.
- A dealer target scheme giving extra goods may require valuation and scheme-document review rather than simple free-sample treatment.
- Warranty replacement is different from a free promotional sample and should be analysed with warranty and vendor-recovery records.
Highlighted points
- Do not treat every marketing item as ITC-eligible.
- Do not ignore Schedule I for related/distinct person movement.
- Do not mix warranty replacement with promotional free supply.
- Keep inventory and campaign evidence together.
Exam and advisory case study
Advisory case: A company distributes high-value gadgets to dealers as promotion but books full ITC. The correct review tests whether the goods are gifts, whether consideration exists through target obligation, and whether valuation or ITC block applies.
Finin2min Summary
The safe GST file starts with scheme classification and then tests supply, valuation, ITC block and inventory evidence.
Q&A
Is output GST payable on every free sample?
Not always. The supply and consideration analysis comes first, but ITC block may still apply.
Can ITC be claimed because samples support sales?
Business purpose alone does not override section 17(5)(h).
What records matter?
Campaign note, stock issue, delivery proof, recipient list, invoice/challan and tax working.
Related internal links
GST on warranty replacementGSTR-2B vs books reconciliationGST ITC checker
Educational material only. This is not legal, tax, financial, accounting, insurance or investment advice. Apply the official source, current portal record, contract and facts of the specific matter.