CBIC issues GST clarification on return form, promotional issues

Union Finance Minister Arun Jaitley and Finance Ministers of Delhi, Bihar and Himachal Pradesh at the 33rd GST Council meeting, in New Delhi.

The Central Board of Indirect Taxes and Customs (CBIC) has issued a simplified Goods and Services Tax (GST) return form and issued clarifications related to the tax incidence on promotional schemes such as Buy One, Get One Free, giving relief to businesses from tax litigations and aiming to ensure better compliance.

Union Finance Minister Arun Jaitley and Finance Ministers of Delhi, Bihar and Himachal Pradesh at the 33rd GST Council meeting, in New Delhi. (PTI)

One clarification pertained to the applicability of GST on the component of the tax collected at source (TCS). After re-examination of the issue in consultation with the Central Board of Direct Taxes (CBDT), the board clarified that TCS will not attract GST.

“The CBDT has clarified that tax collection at source is not a tax on goods but an interim levy on the possible ‘income’ arising from the sale of goods by the buyer and to be adjusted against the final income- tax liability of the buyer,” said the circular issued on Thursday.

“This clarification comes as quite a relief for businesses, specifically the automotive sector. While most industry players already believed that GST should not be levied on income tax [TCS component] given the clarification by the government, they were quite apprehensive of litigation on this aspect,” said Abhishek Jain, tax partner, EY India.

Another CBIC circular issued on Thursday night clarified the case of sales promotion schemes such as Buy One, Get One Free, where taxes would be levied on the price charged from the customer, and accordingly, the input tax credit (ITC) will be computed.

“It may appear at first glance that in case of offers like ‘Buy One, Get One Free’, one item is being ‘supplied free of cost’ without any consideration. In fact, it is not an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply. It can at best be treated as supplying two goods for the price of one,” the circular said.