GST on Free Drug Samples: What Pharma Needs to Know
GST on free drug samples has long troubled Indian pharmaceutical companies. While these samples are essential for marketing, GST authorities have treated them as “supply without consideration,” making them taxable under Section 7 of the CGST Act. But a new relief may finally be on the way.
At the 53rd GST Council Meeting held on 22 June 2024, a key recommendation was made — to exempt GST on free samples distributed by pharma companies. The matter is under examination, and relief could be announced soon.
Let’s break down what this means and why it matters.
Why Pharma Gives Free Samples
Free samples are common in pharma marketing.
- Promoting new drugs
- Creating brand recall
- Clinical feedback
But despite being non-commercial in intent, they attract GST.
The Current GST Position
Under present law:
- Section 7(1)(c) and Schedule I of the CGST Act classify “supply without consideration” between related or distinct persons as taxable.
- Pharma companies and their depots/offices often fall under this bracket.
Net effect:
Companies pay GST on something they’re not earning from, and they can’t claim ITC either. Double burden.
Legal Precedents & Department Stand
- Circular No. 92/11/2019-GST dated 07.03.2019: Clarified that free samples are not supplies if given without consideration. But this applied only where no tax credit was claimed.
- Advance Rulings (AARs) in Maharashtra and Kerala have held that GST is applicable on free drug samples.
However, conflicting interpretations and absence of clarity have led to multiple disputes and audit objections.
What the 53rd GST Council Said
In its press release, the GST Council stated:
“The issue of GST liability on free samples, especially in the pharmaceutical sector, is under examination, and suitable relief will be provided.”
- Exempt GST on free samples
- Clarify input tax credit eligibility
- Reduce litigation risk for pharma companies
Expert View: What Pharma Firms Should Do Now
Until the relief is notified:
- Avoid claiming ITC on goods distributed as free samples to stay compliant
- Maintain proper documentation for audit trail
- Consider self-invoicing at nil value with proper notes
- Stay updated on any official CBIC circulars or notifications
“If relief is notified, pharma firms can revise practices prospectively — but for past years, audit scrutiny will still apply,” says tax advisor Rahul M., Partner at T&D Consulting.
Possible Relief Options Under Consideration
| Option | Description | Likely Impact |
|---|---|---|
| Notification under Sec 11 | Exempt specific free samples from GST | Legal clarity + compliance ease |
| ITC carve-out | Allow ITC even if output is exempt | Reduce cost pressure |
| Circular clarification | Clarify scope under Sec 7 and Rule 28 | Help reduce audit risks |
Related Compliance Alert
Also read: GST on Physician Samples & ITC: What Businesses Should Know
Summary
GST on free drug samples may soon be exempt as per 53rd GST Council recommendations. Pharma firms currently pay GST but can’t claim ITC, leading to compliance burdens.
FAQs on GST and Free Drug Samples
Q1. Are free drug samples currently taxable under GST?
Yes, if given between related/distinct persons, they are treated as taxable under Section 7 r/w Schedule I.
Q2. Can pharma companies claim ITC on samples?
No, ITC is blocked under Section 17(5)(h) of CGST Act.
Q3. Is any exemption available now?
No blanket exemption exists as of now. But relief is under consideration post the 53rd GST Council meeting.
Conclusion: Wait for Notification, But Stay Compliant
The proposed GST relief on free drug samples could reduce compliance load and costs for pharma companies. But until it’s officially notified, businesses must follow current law and keep documentation ready.
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