Taxability of Gifts to Dealers/Sub-Dealers Under GST, Goods and Services Tax - GST

[Ramanathan Seshan]

Dear experts,

Company A provides gifts to its dealers and sub-dealers during festivals, upon achieving certain sales targets, or when new branch stores are opened/expanded.

Would such gifts be considered taxable under GST, especially considering that the definition of "consideration" includes any inducement for a supply? If they are indeed taxable, how should these be disclosed in GSTR-1?

Posts / Replies

[Sadanand Bulbule]

ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION

Entry No 2 of the First Schedule to the CGST Act reads as under:

2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

Further  in terms of Section 17[5][h], ITC on the value of gifts needs to be reversed.

[YAGAY andSUN]

2023 (9) TMI 126 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA

[YAGAY andSUN]

In the context of GST, whether gifts given by Company A to its dealers or sub-dealers are taxable depends largely on the intention and the terms under which those items are given.

According to the Authority for Advance Rulings (AAR), Karnataka, in the case of M/s. Orient Cement Limited (2023 (9) TMI 126 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA), gold coins given to dealers for achieving pre-set sales targets were not considered "gifts". The AAR clarified that since these coins were linked to specific performance milestones, they formed a business obligation or incentive, and not a voluntary or gratuitous transfer.

As a result:

• Such items are considered taxable supplies under GST, even if no money changes hands — because the performance (like achieving a sales target) acts as a non-monetary consideration.

• Since these items are not "gifts" under Section 17(5)(h) of the CGST Act, input tax credit (ITC) is allowed on them.

• Company A must issue a tax invoice based on the fair market value of the item and disclose it in GSTR-1 under the appropriate section (B2B or B2C), depending on the recipient.

This approach ensures alignment with GST principles of supply-for-consideration, even in non-cash transactions, and gives clarity on when ITC is admissible.

This analysis is based on the Advance Ruling by AAR Karnataka in IN RE: M/s. Orient Cement Limited – 2023 (9) TMI 126, which interpreted Section 17(5)(h) of the CGST Act, 2017.

*** 

[Sadanand Bulbule]

True Sir. As long as the transaction is held to be taxable supply of goods, ITC is entitled. Section 17(5)(h) comes into play in otherwise “gifts” falling outside the domain of supply of goods under Section 7. I welcome your point. 

[Ramanathan Seshan]

Dear Yagay-sir,

Thank you for your detailed response.

Regards,

S Ram