‘Buy 1 get 1 free’ deals to come under GST…

This blog has always wondered what is a more useful deal on a good- Buy one, get one free or 50% off . For a producer looking to get his goods off the shelf buy one get one is a better offering. However, for a consumer 50% off is a better deal as it given the flexibility over how much to consume given it comes at half the original price.

However, it seems with GST things are going to get complicated. The one plus one deal could invite taxes under GST:

Free samples and gifts offered with purchases as well as popular ‘buy-one-get-one-free’ deals may attract the proposed Goods and Services Tax (GST) levy which government plans to roll out from April next year.

The model GST law, unveiled by the government last week for stakeholder comments, says that any supply sans any consideration will attract tax. This would cover free gifts and samples as well as buy-one-get-one-free deals, tax experts said.  

Section 3 of the model GST law defines a supply of goods and services to include ones “made or agreed to be made without a consideration.” Under the Schedule-1 for ‘Matters to be Treated as Supply Without Consideration’, the law further goes on to define them as “Supply of goods and / or services by a taxable person to another taxable or non-taxable person in the course or furtherance of business.”

Simply put, buyers will have to pay GST on articles they receive free. “GST will be entirely based on the concept of a ‘supply’, which now includes even goods and/ or services supplied without consideration by a taxable person in the course of or furtherance of business,” said Rohit Jain, Partner, Economic Laws Practice.

KPMG India National Head (Indirect Tax) Sachin Menon said, “This will impact the sales and marketing cost of companies which follow the system of free samples or free supply strategy such as “buy one get one free.”

Presently, for a free sample of goods, excise duty is payable but VAT/ CST is not payable. However, proportionate input tax credit under VAT is reversible in some states. “The net impact for businesses will therefore be the difference between the existing Excise and VAT cost, and the GST which will become payable,” Jain said. “Similarly, complimentary services (for which no charges/ fees are payable) which do not currently attract Service tax, will suffer GST.”

Tough times for consumers. They will be taxed for everything under the sun in GST and on freebies too.

Will this lead companies to just offer 50% off deals? Why will consumers pick a free item and yet pay taxes?

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