Treatment of Gifts under GST

The word “Gift” is not defined under GST Act. Thus the definition provided under Section 2(XII) of the Gift Tax Act defines gift as

- the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money’s worth. Thus, a gift is a gratuity and an act of generosity and does not require a consideration, but there can be none; if there is a consideration for the transaction it is not a gift.

Input Tax Credit on Gifts

The provision related to availability of ITC on gifts has been dealt with at two specific places under the GST Law:

  1. Under Section 17 (5) (h) of CGST Act, 2017 the relevant provision of the said provision specifies that:

    Notwithstanding anything contained in sub-section (1) of Section 16 and subsection (1) of Section 18, input credit shall not be available in respect to the following namely:-

    “Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.”

  2. Entry no. 2 of schedule 1:

    Activities to be treated as supply even if made without consideration – supply of goods or services or both between related persons or distinct persons as specified in section 25, when made in the course or furtherance of business provided the gifts not exceeding Rs.50000 in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

Treatment of different scenarios:

  1. Sales promotion can be considered as supply or not

    Sales promotion is an expense for the furtherance of business. For considering the supply, there should be some consideration. To answer whether sales promotion can be considered as supply or not, one needs to understand the term “inducement” used in the definition of consideration. Inducement means to give something to a person so that he will do something else in return.

    Implication

    The sales promotion may fall under the definition of supply as nothing in the business world is free & something in return is involved in it.

  2. Free gifts or articles along with the supply of a product

    In this case, free gifts are provided on purchase of a particular product. These kinds of supply falls under the category of mixed supply which cannot be naturally bundled.

    Implication

    Thus these kinds of gifts will fall under the category of supply and taxable.

  3. Promotional goods with company logo provided to distributors

    These gifts are provided without any consideration. Hence, the same will fall under the definition of gift & hence, ITC needs to be reversed. However, if these items are given to related parties then the same will be treated as supply & ITC will be available.

    Implication

    In brief, it can be said that in some cases gifts provided are covered under supply & in some other cases it is out of the ambit of supply, therefore each case needs to be analyzed separately after considering the legal provisions.

  4. Gifts to employee by employer can be considered as supply ?

    As per Section 15 of CGST Act, 2017 the employer-employee shall be deemed to be related person under GST. Now as per Schedule III of CGST Act, the service provided by an employee to the employer in the course of or in relation to his employmentshall be treated neither as a supply of goods nor as a supply of services.

    Any Perquisite forming part of the employment agreement i.,e included in employee’s CTC shallnot be considered as supply.

    In case the gift does not form part of the employment agreement gift provided to employees above Rs.50000 will be covered under supply & therefore ITC will be available on it but the gifts up to the value of Rs.50000 will begift not falling under Entry No.2 of Schedule I, thus there will be reversal of ITC.

Declaration :

“The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received, or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation.”

Prepared By

Chinmayi

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Contact :

Ankit C Shetty

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