GST on Free Goods, BOGO and Quantity Schemes: Supply, Valuation and ITC

Ask a scheme designer what "free goods" means and you will get one answer. Ask GST law and you will get three. A buy-one-get-one pack, a 20% extra-quantity pack, a physician sample and a 100-free-units dealer reward all look like free goods on a scheme circular — and each one gets a different GST treatment. This guide walks through them scheme by scheme, using CBIC Circular 92/11/2019-GST (7 March 2019, still operative as of July 2026) as the anchor.

The short answer

BOGO is not free goods under GST. True free samples are. That single distinction drives almost everything else:

• A BOGO or combo pack is two goods sold for a single price — a normal taxable supply, rate decided by composite/mixed supply rules, full ITC intact.
• A genuinely free sample or gift — no consideration at all — is not a supply (unless Schedule I applies), so no output GST; but Section 17(5)(h) blocks the ITC on those goods.
• A quantity or slab discount is neither of the above — it is a discount, routed through Section 15(3) and the credit-note rules covered in our parent guide on GST on trade discounts and dealer incentives.

The counter-intuitive core: the pack marketed as "FREE!" is usually fully taxable with full credit, while the quiet sample carton in the van is the one that costs you input tax credit.

BOGO and combo packs: two goods, one price

Circular 92/11/2019 is explicit: in a buy-one-get-one offer, the second item "is not an individual supply of free goods" — it is "two or more individual supplies where a single price is being charged for the entire supply." You are supplying two goods for the price of one, not one good plus a gift.

Two consequences follow:

Rate. The applicable rate follows Section 8 of the CGST Act. If the items are naturally bundled (a composite supply — say, two packs of the same soap), the principal supply's rate applies. If they are not naturally bundled and carry different rates (a mixed supply — say, a shampoo bottle clubbed with a plastic comb at one price), the highest rate in the pack applies to the whole price. That rate arithmetic should be checked at design time — a low-value freebie carrying a higher rate can re-rate the entire combo.

ITC. Because nothing is legally free, the circular confirms ITC is available on inputs, input services and capital goods used for the entire offer. No 17(5)(h) exposure.

Mini-example: a biscuit brand runs "buy one 200g pack, get one free" at ₹40. GST applies on ₹40 at the biscuit rate; ITC on both packs' inputs stays intact. The "free" pack cost the brand margin, not tax credit.

Extra-quantity packs: 20% extra is not a free supply either

The "20% extra" grammage pack is the same logic in a single carton: one product, one price, more quantity. There is no separate free good at all — just a single supply whose transaction value under Section 15(1) is the price actually charged. GST is paid on that price; ITC on the full input quantity (including the extra grammage) is available. For scheme design, extra-quantity packs are the cleanest structure of all — no rate analysis, no ITC block, no credit-note trail.

True free samples and gifts: no output tax, but ITC is blocked

Physician samples, trade sampling stock, festival gifts to retailers — goods that move without any consideration — are not a "supply" under GST (no output tax), except where Schedule I applies, such as supplies to related or distinct persons. But Section 17(5)(h) blocks ITC on goods "disposed of by way of gift or free samples, whether or not in the course or furtherance of business." Credit already taken on those inputs must be reversed.

That block is a real, quantifiable cost — price it into the scheme:

Mini-example: a pharma company distributes 10,000 sample packs. Input cost per pack is ₹50, with roughly ₹6 of GST paid on inputs. Blocked ITC = 10,000 × ₹6 = ₹60,000 on a ₹5,00,000 sampling budget — a 12% hidden uplift the brand team rarely sees. At FMCG sampling volumes, this routinely runs into lakhs per quarter.

Related edge case: goods destroyed or written off (expiry, damage) sit in the same 17(5)(h) block — see credit notes for expired and damaged goods returns.

Buy-more-save-more slabs: these are discounts, not free goods

Staggered offers ("10% off above 5,000 units, 20% off above 10,000") and periodic volume discounts are discounts, and Circular 92/11/2019 routes them through Section 15(3): excludable from taxable value if shown on the invoice, or — for post-supply settlement — established in an agreement before the supply and linked to specific invoices, with the recipient reversing proportionate ITC. The supplier's own ITC is unaffected. This is the classic volume rebate structure, and the slab mathematics is exactly what FMCG distributor claim calculations automate.

Discounts agreed only after supply (secondary discounts) fail 15(3), do not reduce taxable value, and settle by financial rather than tax credit note — a position reinforced by CBIC Circular 251/08/2025 on post-sale discounts.

Free goods as scheme rewards: the claims-settlement trap

Now the case scheme designers actually argue about: a dealer hits the quarterly slab, and the reward is 100 free units instead of money. Reward-in-kind feels cheaper — but it usually is not:

• GST: goods issued without separate consideration risk being treated as a gift/free supply — no output tax, but a 17(5)(h) ITC block on the reward stock. Some argue the reward is contractual consideration, but that position invites disputes. A credit note against a documented scheme is the cleaner, better-settled route.
• TDS: a reward in kind is a benefit or perquisite under Section 194R — 10% TDS once benefits to a dealer cross ₹20,000 in a financial year, and for wholly in-kind rewards the company must fund the TDS itself.
• Settlement workflow: free-goods rewards create a parallel inventory movement that most secondary scheme settlement processes track badly — units leave the warehouse against a scheme, not an order, and reconciliation dies in spreadsheets.

Summary: scheme type × supply × valuation × ITC

Scheme type	Is it a supply?	Valuation	ITC position
BOGO / combo pack	Yes — multiple supplies, single price	Price charged; rate via composite/mixed rules	Full ITC available
Extra-quantity pack (20% extra)	Yes — one supply	Price charged (Section 15(1))	Full ITC available
True free sample / gift	No (unless Schedule I)	—	Blocked under 17(5)(h); reverse if availed
Buy-more-save-more / volume slab (known upfront)	Yes — discounted supply	Discount excludable per Section 15(3)	Supplier ITC intact; recipient reverses proportionate ITC (post-supply case)
Secondary discount (decided post-supply)	Yes	No reduction in taxable value; financial credit note	Unaffected
Reward in kind to dealer	Contested — gift risk	—	17(5)(h) block risk; plus 194R TDS

Design the scheme, and the settlement, together

The same commercial spend — "give the trade 10% more value" — can land as a fully creditable combo pack, a blocked-ITC free issue, or a 15(3) discount, purely on how the scheme is drafted. And each structure creates a different settlement workflow: combo packs need no claims at all, slab discounts need invoice-linked credit notes and proof, and in-kind rewards need inventory plus TDS tracking. That is why rebate software built for FMCG schemes and a proper trade promotion management stack treat scheme structure as a first-class field — the GST document trail is generated from it, not reconstructed after the quarter closes. ClaimDS settles slab schemes, quantity offers and in-kind rewards against the documentation each one legally needs, and keeps the credit-note and accounting trail audit-ready.

Disclaimer: This article is general information, not tax or legal advice. Positions summarised here are based on CBIC Circular 92/11/2019-GST, Sections 8, 15, 17(5)(h) and Schedule I of the CGST Act, and Section 194R of the Income-tax Act as understood in July 2026; circulars, rates and case law evolve, and reward-in-kind structures in particular are contested. Verify current provisions on cbic-gst.gov.in and with a qualified professional before finalising scheme design.