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.
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.
| 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. |
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.
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.