Free Samples, Buy-One-Get-One and Promotional Goods

Free Samples explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

FMCG runs on promotion. Free samples with a trade pack, buy-one-get-one, extra grammage, gifts on a purchase threshold, secondary discounts settled at quarter end. Each of these looks like the same thing — goods leaving the warehouse without a price against them — and each is taxed differently.

Circular No. 92/11/2019-GST dated 07.03.2019 separated them, and the ICAI FMCG sectoral guide treats it as the governing framework.

Free samples and gifts given without consideration are not a supply (unless Schedule I applies), but s.17(5)(h) blocks the input tax credit on them. Buy-one-get-one is not a free supply — it is two or more goods supplied for a single price, so it is a composite or mixed supply, fully taxable, with credit fully available. Discounts under a scheme are governed by s.15(3). Secondary discounts not meeting s.15(3)(b) do not reduce value, but the supplier need not reverse credit on them.

Free samples and gifts

Goods distributed free, without consideration, are not a supply under s.7(1)(a) — there is no consideration.

Two qualifications:

Schedule I may still apply. A "free" supply to a related person or distinct person in the course of business is a supply under Schedule I paragraph 2, valued under Rule 28. So free stock sent from head office to a branch, or to a group company, is not outside the net.

Section 17(5)(h) blocks the credit. Input tax credit is not available in respect of "goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples." The manufacturer took credit on inputs used to make the sample; that credit must be reversed.

So the free sample costs the business the input tax, even though no output tax arises.

Buy-one-get-one — the important distinction

The circular is unambiguous: a BOGO offer is not an individual supply of free goods.

It is a case of two or more individual supplies where a single price is charged. Taxability is therefore determined under s.8 — as a composite supply if the items are naturally bundled, or a mixed supply if they are not.

Two consequences follow, and both favour the taxpayer:

• The transaction is fully taxable on the price actually charged. No notional value is added for the "free" item.
• Input tax credit is fully available on both items. Section 17(5)(h) does not apply, because nothing was given away — it was sold as part of a bundle.

The practical lesson for scheme design: a BOGO is materially better than a free sample, because the credit survives. A "buy one, get one free" and a "buy one at half price, get a second at half price" are economically identical and taxed identically — but neither is a gift.

Discounts under a scheme

Staggered discounts — "get 10% on purchases above 5,000 units in a quarter" — are governed by s.15(3)(b). Under the current test, the discount must be established by an agreement entered into at or before the time of supply, specifically linked to relevant invoices, and the recipient must reverse the attributable ITC.

Where those conditions are met, the discount reduces value and the supplier issues a credit note under s.34.

The Finance Act, 2026 substitutes s.15(3)(b) to drop the pre-agreement and invoice-linkage conditions, leaving only the credit note and the recipient's reversal — but that amendment awaits notification. Post-supply discounts under the new s.15(3)(b) →

Secondary discounts — those not known at the time of supply and not meeting the s.15(3)(b) conditions — do not reduce the taxable value. The circular's important addition: the supplier issuing a financial or commercial credit note for such a discount is not required to reverse ITC attributable to it. The tax stays on the original value; the commercial adjustment happens outside the GST value.

The scheme designer's matrix

The pattern is clear: anything structured as part of a priced supply keeps its credit; anything structured as a giveaway loses it.

Practical notes for FMCG

• Design promotions as bundled supplies, not giveaways, where the commercial effect is the same. The ITC difference is real money.
• Extra grammage is the cleanest structure — one pack, one price, more product.
• Do not describe a BOGO as "free" in the invoice. The invoice should show the bundle and the single price. A line item at zero value invites the s.17(5)(h) argument.
• Track sample issues separately in the ERP, with the reversal computed at the point of issue rather than reconstructed at year end.
• Free stock to distributors is a common blind spot — the distributor is usually unrelated, so it is not a Schedule I supply, and the credit is blocked.
• Sales-promotion goods bought in — branded merchandise, display material given away — are equally caught by s.17(5)(h).

Key takeaways

• Free samples and gifts: not a supply, but ITC blocked under s.17(5)(h).
• Schedule I still catches free supplies to related or distinct persons.
• BOGO is not a free supply — it is a single-price bundle under s.8, with full ITC.
• Extra grammage and combo packs are treated the same way as BOGO.
• Secondary discounts do not reduce value, but no ITC reversal is required on them.
• The governing clarification is Circular No. 92/11/2019-GST.

Read next

• Blocked ITC Under Section 17(5)
• Post-Supply Discounts Under the New Section 15(3)(b)
• Mixed Supply and the Single Price
• Discounts Under GST: When They Reduce Taxable Value

Disclaimer: Positions stated as on 5 September 2026, based on the ICAI GST Sectoral Guide on Fast-Moving Consumer Goods (2026) and Circular No. 92/11/2019-GST.