In the GST (Goods and Services Tax) regime, all forms of supply of goods or services are chargeable under GST. These are also to be noted under Schedule 1 and could be charged even if there is no direct charge. This is why we need to understand how to treat free supplies and samples and whether they are applicable for exemption under Income Tax (ITC).
Free samples are goods which are distributed without any payment. These could be done in two ways. The first is when these marked as samples like: not For sale Purpose and the other one is when goods do not contain any such type of declaration.
Treatment: As the samples (goods) are supplied free of cost then accordingly they are subject to Schedule I of GST. Thus, the input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration or payment.
Free Supplies, like the free samples can again be bifurcated into two categories: In the first nature Supplies where buyer gets unit(s) of a product free of cost on purchase of certain units of same product. For example: Buy 1 , Get 2 could be mentioned on the supply and the other in which certain extra quantity is mentioned on the package as being offered for free (In Ref. of F.No.20/16/04/2018-GST).
Treatment: Taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined as per the provisions of section 8 of the GST act. Here, ITC shall be available to the supplier for the inputs, input services and capital goods used in relation to supply of goods or services or both as part of such offers.