VAT on Free products

[JOHN SHANNEL]

When our distributor buys 100 pkts of snacks we give 2 packets free. I want to confirm whether there is VAT payable for the 2 pkts sold. Also please tell in which section it applies.

 

John Shannel

[CA Rachit Agarwal]

Vat is levied on sale of goods.

No doubt that when the goods are sold, valuation rules do apply.

However sales price of 100 packets to include the sales price of 2 packets sold free. Hence in our opinion no vat would be levied on free goods

In my opinion It's total depend on described  the scheme and provision of state laws. in proper  planed manner  extra burden of vat may be avoid. 

AI Summary

VAT on free goods: valuation rules may include freebies in the sale price, altering VAT liability.
Whether VAT applies to free items distributed with a sale turns on valuation rules: VAT is levied on sale of goods and, where free items form part of the same transaction, their value may be included in the overall sale price so no separate VAT is charged on the freebies. Treatment can vary depending on the scheme and applicable state VAT provisions, so review and planning are necessary to determine taxability.