GST relief for pharma samples discount offers

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NEW DELHI: Many businesses have been grappling with basic questions on discounts and freebies. Does a free toothbrush with a tube of toothpaste attract GST? Or, how much GST will be levied on a charger that is part of a pack of mobile phone purchased by customers? 

Close to two years after GST was launched, the finance ministry sought to provide some answers. So, from now on companies know that the toothpaste pack with the free toothbrush will face a levy on the combined value. And, in case two products face different rates of GST, the product with the higher levy will determine the tax rate on the packet. The confusion had forced some restaurants serving Gujarati thali to make sweets optional as food products faced a5% levy and sweets 12%. So, if sweets were included, GST on the thali was 12%. 

But in case of a mobile phone with a charger, the charger is incidental to the purchase, only the mobile phone will face the tax. “No one travels on plane to get a sandwich. So, tax is on the airfare. The same logic applies here,” explained a tax consultant. There is good news for pharma companies too as the clarification issued late Thursday evening said that free samples and gifts will not attract GST. But on the flip side, consultants frowned at the government’s decision not to grant input tax credit on the sample, which are seen to be crucial for pushing medicines. 

Similarly, the government has clarified on ‘buy more, save more’ offers too, which allow consumers to get staggered discounts of, say 10%, on purchases of up to Rs 5,000, and 20% in case the bill amount is Rs 10,000. Here, the tax will be on the invoice value. Similarly, there is more clarity on volume discounts that companies offer to their dealers. 

The government also said that post-sale or secondary discounts will be excluded, while determining the value of supply as the value of these discounts is not known at the time of sale. Often, goods such as biscuits are supplied at, say Rs 10 per packet, but a Re-1 discount is offered later. The clarification is meant to address these situations, although some consultants are not fully satisfied. “While the circular has clarified on some of the issues related to discounts, businesses would face some practical challenges in distinguishing between pre-sale and post-sale discounts,” said M S Mani, partner at Deloitte India