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Taxability and input tax credit of FOC Supply.
Taxability and input tax credit of FOC Supply.
Hey guys, i think this article is for all the people who are curious about implementation of GST in india. As we already know that GST bills have been tabled in the upper house of the parliament for approval. The expected due date for rolling out the gst bills also seems to be acheived. However, a we are moving each step closer towards the biggest tax reform in india, there would be a lot of questions that would be popping you mind.
In this article let's discuss some of them and how they will affect us in general. I would also be requiring your expertise and views on the same. So let's begin. We also know that the taxable event under GST is supply of goods and services.
- Whether free of cost supply of goods are taxable.
In businesses, certain situation arises or events occur where goods are transferred free of cost. Sometimes, these are transferred to related parties and other times to unrelated parties.
Section-3 of GST model law defines supply of goods. Also schedule-I of the act, prescribes certain transactions of goods and services which shall be treated as supply even if no consideration is charged for the same.
Clause-2 of schedule-I makes it clear that goods supplied free of cost to related parties shall be treated as supply of goods and services and hence GST shall be chargeable on it.
However, if the supply is made to a person other than a related party then GST shall not be chargeable on it.
Availability of input tax credit on FOC supply.
Section-17 of GST model law defines how credit shall be apportioned when both exempt and taxable supplies are made.
In this section clause-4 specifies precisely some items on which input tax credit shall not be available. In clause 4(g) it is specified that if goods are given as free samples or or by way of gift then input tax credit shall not be admissible on it.
Hence to conclude if supply of goods and services are made free of cost to related party then gst shall be chargeable and input will also be available on the same.
If supply is made to unrelated party then it shall not be liable to GST and input tax credit shall not be available on the same.
