Businesses that hand out product samples have long faced an awkward GST rule: the sample costs money to make, but the tax paid on its inputs cannot be claimed as credit. At its 57th meeting on 8 October 2026, the GST Council proposed to change this. Here is what is being proposed, what the law says today and what businesses should do in the meantime.
Important: This is a Council recommendation. As of 20 October 2026, the amendment has not come into force. Until the law is actually amended, the existing rules continue to apply.
Understanding ITC on Free Samples
Section 17(5)(h) of the CGST Act, 2017 blocks input tax credit (ITC) on goods that are lost, stolen, destroyed, written off, or disposed of by way of gifts or free samples.
In practice, if a manufacturer gives away products for promotion, the ITC attributable to those products is generally not available. This holds even when the sampling is clearly meant to generate future taxable sales.
Two separate questions arise with free samples, and they should not be mixed up:
- Is outward GST payable on the sample? Under CBIC Circular No. 92/11/2019-GST, goods given free without consideration are generally not a “supply” under Section 7, unless Schedule I applies. So ordinary samples usually attract no output GST.
- Can ITC be claimed on the sample? Today, generally no, because of Section 17(5)(h).
What the Council Has Proposed
The Council has recommended removing the ITC restriction on free samples under Section 17(5). If enacted, businesses may be able to keep the credit on inputs and input services attributable to genuine promotional samples.
The proposal addresses the ITC side only. It does not by itself change the rules on whether outward GST is payable.
Who May Benefit
Any business that regularly distributes samples for promotion, trial or demonstration, for example:
- Pharmaceutical companies giving medicine samples to doctors
- FMCG and cosmetic companies distributing sachets, trial packs and stall samples
- Food manufacturers offering tasting packs
- Paint, chemical and textile businesses sending samples to dealers or industrial buyers
- Businesses distributing trial products at trade exhibitions
A Simple Illustration
Suppose a company manufactures 200 units. It sells 180 and distributes 20 as promotional samples. The GST paid on all relevant inputs is ₹4,000, spread evenly across units.
| Existing law | After the proposed change | |
| ITC attributable to 180 sold units | ₹3,600 | ₹3,600 |
| ITC attributable to 20 samples | ₹400 (blocked) | ₹400 (potentially available) |
| Total ITC | ₹3,600 | ₹4,000 |
The extra ₹400 could then be used against GST payable on other taxable sales. This assumes the final law allows the credit, no deemed-supply liability arises and all other conditions are met.
What Does Not Change
The proposal should not be read too broadly. Several points remain as they are.
1. Gifts are not clearly covered. The Council’s recommendation speaks of free samples. No general relief for gifts has been announced. A hamper sent to a dealer for goodwill is different from a product sample sent so that someone can try your product. Putting a logo on an item does not turn a gift into a sample.
2. Genuine “buy one, get one free” schemes already work. Where two items are supplied for a single price, the transaction is a taxable supply for consideration, and ITC is generally already available. No new relief is needed there.
3. Advertising services are a separate matter. GST on ordinary advertising or campaign services is generally not blocked merely because the purpose is promotion. Section 17(5)(h) targets goods actually given away as samples.
4. Section 16 conditions continue. You will still need valid tax invoices, receipt of goods or services, use in the course or furtherance of business, compliance with return filing and payment conditions, and a claim within the time limit.
5. Outward GST needs separate examination. Schedule I treats certain transactions without consideration as supplies, for instance permanent transfer or disposal of business assets on which ITC was availed. If a business buys finished goods, takes ITC and then gives them away as samples, a question may arise whether this becomes a deemed supply. Whether full ITC and no output GST can both be supported will depend on the final wording or a clarification from CBIC.
Will Past Credit Be Allowed?
No retrospective relief has been expressly recommended. So businesses cannot reclaim credit already blocked in earlier years on the strength of the Council’s recommendation alone. The enacted text will decide the commencement date, transitional treatment and the interaction with the time limit under Section 16(4).
Practical Steps to Prepare
- Track samples separately. Maintain a sample issue register with dates, quantities, recipients and purpose.
- Keep production records. Batch-wise manufacturing and stock movement records will help support the credit attributed to samples.
- Compute credit on actual input tax. Attribute the tax actually paid on inputs and input services, not a notional rate applied to MRP.
- Separate samples, gifts and scheme goods in your books, since each may be treated differently.
- Follow the existing rule until the amendment is notified. Do not start claiming credit on the strength of the proposal.
- Watch for the final amendment and any CBIC circular, particularly on Schedule I and exempt-supply implications.
How Sagar S Gupta & Co Can Help
Changes like this are easy to misread. A headline saying “ITC allowed on free samples” can lead a business to claim credit it is not yet entitled to, or to miss conditions that still apply.
Need help reviewing your ITC position on promotional goods? Get in touch with us.
Disclaimer: This article is a general guide based on the GST Council’s proposal and the law as it stands. It is not professional advice. The final amendment may differ. Please consult a qualified professional for your specific circumstances.