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Impact of GST on sales and marketing

Updated on :  

08 min read.

Marketing is advertising a company’s goods or services to increase sales. GST at 5% is applicable on marketing services. 

Sales and marketing is the supply of goods or services

The word supply has an inclusive definition under GST. It includes the sale, transfer, lease, rental, disposal, exchange and barter. In simple words, any transaction undertaken during business or furtherance of business for consideration is called supply under GST. Marketing is done to promote the sales of an organisation. Sales promotion is an important business function for any organisation. The distribution of promotional items boosts the organisation’s sales and is thus considered a supply of goods, and GST is applicable on such supply.

GST treatment or levy on sales and marketing activities

Valuation rules for GST on sales and marketing

GST is charged on transaction value. Transaction value is the price paid for the supply of goods or services.

Promotional items are supplied free of cost. But, GST needs to be paid on the actual value at which such goods would have been sold in the market.

Availability of Input tax credit

The marketing service provider is eligible to avail input tax credit.

The table below explains the applicability of GST and availability of ITC on marketing activities undertaken by the company to promote its goods or services:

References to advance rulings 

Let us discuss the judgment passed by the Appellate Authority of Advance Ruling, Karnataka, regarding the availability of ITC on promotional items.

Explanation: Companies follow a common practice of issuing promotional items such as calendars, pens, carry bags, etc., which contain the company’s logo for its marketing activities. As per Advance Ruling Authority, the supply of such promotional items is considered as supply. It does not attract Schedule 1 as promotional items are not considered assets because their entries are passed through the Profit and Loss Account.

Thus, the supply of promotional items is considered a non-taxable supply. So, GST is applicable on the supply of such items, but ITC is not available on its inputs. 

The Supreme Court passed a similar judgment in the case of Coca-Cola during the pre-GST era.

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