AITAF asks to allow input tax credit on promotions

According to section 17(5) of the CGST Act, an input tax credit will not be available for goods given as gifts or free samples.

The All India Tax Advocates' Forum (AITAF) on Tuesday urged Finance Minister Arun Jaitley to allow assesses to avail input tax credit on sale transactions under promotional schemes like “buy-one-get-one-free” deals.

“Withdrawal of input tax credit under the new GST regime will severely 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 schemes,” AITAF president M K Gandhi said.

According to Section 17(5) of the CGST Act, an input tax credit will not be available for goods given as gifts or free samples. Thus, if the taxpayer avails the input tax credit on account of purchase of goods and later gives these goods as free samples, the input tax credit will be reversed.

Prior to the introduction of GST, products given free of cost were not liable to VAT and a dealer was entitled to input tax credit. However, in the new GST regime, the supply of goods by one person to another without consideration does not enjoy this benefit.

“This would lead to increased cost of promotion and also pose a challenge as regards the valuation to be adopted for calculating GST on such goods,” Gandhi said.

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