GST on Free Drug Samples: Pharma Sector May Finally Get Clarity
GST on free drug samples has been a grey area for long, triggering disputes and audits for pharma companies. But recent developments hint that the government may soon issue a relief clarification—possibly aligning GST law with ground realities and business practice.
Here’s a simple explainer of what this means, why it’s significant, and how pharma companies should prepare.
Why Is GST on Free Samples a Problem?
Under current GST law:
- Supply includes “all forms of supply made for consideration in the course or furtherance of business” [Section 7(1)(a), CGST Act, 2017].
- However, Schedule I also taxes certain supplies even if made without consideration — including gifts to employees or related persons.
Free drug samples, distributed to doctors for brand awareness or marketing, fall under this ambiguity.
Past Legal Stand & Department View
- Circular No. 92/11/2019-GST (dated 7 March 2019) held that free samples are not eligible for input tax credit (ITC) as they are given without consideration and fall under ‘non-business use’ or ‘personal consumption’ [Section 17(5)(h)].
- Tax officers often treat them as ‘deemed supply’ under Schedule I and raise demands.
- Pharma companies end up paying GST on notional value or reverse ITC availed.
Expected GST Relief for Pharma Companies
As per sources quoted in Economic Times (July 2025), the GST Council is considering:
✅ Excluding free drug samples from Schedule I
✅ Allowing proportionate ITC on inputs used for free samples
✅ Bringing marketing samples under business promotion expenses rather than supply
This would align GST law with:
- Industry practice (samples are not meant for sale)
- Income Tax treatment (samples are a deductible marketing expense)
- Global norms (such samples are typically not taxed unless sold)
What Does the Law Say Currently?
| Aspect | Current GST Position | Possible Change |
|---|---|---|
| Tax on Free Samples | Taxable under Schedule I (deemed supply) | May be exempted/clarified as non-supply |
| ITC on Inputs | Blocked under Section 17(5)(h) | Likely to be allowed proportionately |
| Valuation Method | Rule 27/28 (open market value) | May be removed if declared as non-supply |
| Industry Practice | Treated as marketing cost | To be formally recognised |
Expert View
CA Ritesh Jain, Indirect Tax Consultant:
“The pharma sector spends crores annually on sampling. Denying ITC while taxing the output creates cascading effect. The proposed relief is a long-overdue rationalisation.”
Action Points for Pharma Companies
- Track upcoming GST Council meeting and Circulars
- Segregate sample-related input costs for easy ITC tracing
- Avoid aggressive ITC claims until formal relief is notified
- Maintain clear documentation for sample dispatch, quantity, and purpose
Legal Reference Recap
- CGST Act, 2017:
- Section 7 (Scope of supply)
- Schedule I (Deemed supply without consideration)
- Section 17(5)(h) (Blocked credits on free items)
- CBIC Circular No. 92/11/2019-GST
- Rule 27/28 of CGST Rules (Valuation of supply)
Note: Relief will only be valid if officially notified by CBIC through a Notification or Circular.
Will This Set Precedent for Other Industries?
Possibly. If samples are exempted for pharma, similar requests may arise from FMCG, cosmetics, and auto sectors who also issue free promotional samples.
FAQs
Q1. Are free drug samples taxable under GST currently?
Yes, as per Schedule I and Circular No. 92/2019, they are considered deemed supply without consideration.
Q2. Can pharma companies claim ITC on inputs used for samples?
Currently, ITC is blocked under Section 17(5)(h). But relief may be announced to allow it.
Q3. What documentation should companies maintain for samples?
Delivery challans, doctor-wise distribution logs, and cost sheets to support purpose and valuation.
Summary
Free drug samples may soon be exempt from GST as per upcoming CBIC clarification. This would offer ITC benefits and simplify tax for pharma companies.
Conclusion: Get Ahead of the Change
Efiletax will continue to track this critical update for pharma and related sectors. If you’re a pharma business dealing with sample-related GST queries, reach out to our team for expert support and advance compliance planning.