Companies take taxman to court over denial of GST credit on gifts

As per the current regulations, pharmaceutical companies cannot avail of tax credit on free samples given to doctors or their clients. Consumer product companies and others are also unable to avail tax credit on customised gifts such as calendars and chocolates they give to their customers. Inability to take credit or set off cost drives up companies’ total costs.

Section 17 (5) (h) of the CGST (Amendment) Act 2018 says input tax credit “cannot be availed on goods that are lost, stolen, destroyed or distributed as gifts or for free”.

A group of companies has dragged the government and the indirect tax department to court over denying input tax credit on gifts and samples given to customers and clients.

Under the Goods and Services Tax (GST) framework, companies can set off costs incurred on raw materials or input services against future tax liabilities. However, it denies this benefit on goods distributed as gifts or given free.

The Gujarat High Court  issued notices to the government and tax department on the companies’ petition challenging the denial.

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