NEW DELHI: Addressing a vexed tax problem traders face, the government on Thursday night clarified that traders will not be denied of credits for taxes paid while sourcing goods which are eventually given away freely under discount schemes such as 'buy one, get one free'.

The finance ministry also said in a clarification on taxation of promotional schemes that in the case of free samples given to customers such as medicines, the item supplied will not be taxable because the supplier is not getting any 'consideration' in return for that item.

However, the supplier in such cases, will not get any credits for taxes paid while sourcing them.

Under GST, only supplies made in return for a 'consideration' are taxable. Businesses and merchants use credits for taxes paid on raw materials, services or capital goods for meeting a part of their final tax liability.

Experts said the detailed clarifications will help in avoiding litigation.

"The explicit clarification on availability of credit on goods supplied under 'buy one get one scheme' would be quite welcome by most industry players. While many businesses had as well adopted the same tax position as clarified in the circular, because of varied interpretation, they were apprehensive of widespread litigation on this," said Abhishek Jain, tax partner, EY.

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