Record genuine free promotional samples by moving their supported stock cost into an appropriate promotion expense and reducing inventory. Review the related GST treatment separately. A sample issue should identify the campaign, recipient and quantity; describing stock as “free” does not establish either the accounting purpose or the tax result.
Identify the actual promotional arrangement
A small pack given without payment to introduce a product differs from a bundled offer where the customer pays one price for several items. Goods loaned for demonstration and expected back also differ from samples permanently distributed.
Read the campaign terms and retain approval. Determine whether the recipient provides something in exchange, such as a separate promotional service, and whether related-party or distinct-person rules may be relevant.
CBIC Circular 92/11/2019 explains GST distinctions among free samples, gifts and schemes such as buy-one-get-one arrangements. The accounting should reflect the actual scheme rather than a marketing label applied after stock has left the warehouse.
Illustrative free sample issue
A Jaipur food-products business distributes one hundred sample packs to prospective independent retail customers. Each pack has a supported inventory cost of ₹80, giving total cost of ₹8,000. Assume the facts support promotion expense and no other accounting obligation changes the entry.
| Account | Debit ₹ | Credit ₹ |
|---|---|---|
| Product promotion expense | 8,000 | — |
| Inventory | — | 8,000 |
| Total | 8,000 | 8,000 |
No customer receivable or cash is recognised because no payment is due in this illustration. The shop’s usual retail price does not determine the expense; it is the carrying cost of the goods distributed.
If sample packs are manufactured separately, use the supported cost from the production records. Do not assign them zero cost merely because they have no selling price.
Deal with the related input-credit effect
Section 17(5)(h) of the CGST Act restricts credit for goods disposed of as gifts or free samples, among other listed events. The CBIC circular discusses credit consequences and the exception where the activity falls within Schedule I supply provisions.
For an illustrative simple free-sample campaign, assume a supported working requires reversal of ₹1,440 of earlier credit. Debit the appropriate promotion or ineligible-tax cost ₹1,440 and credit the relevant GST reversal control ₹1,440, consistent with the credit’s original recording and reporting.
The return and payment consequences must be completed through the actual tax process. The example does not prescribe a reversal percentage or conclude that every campaign has the same tax treatment.
Avoid treating bundled sales as free stock issues
A “buy two, get one” scheme may involve a single consideration for the entire supply rather than an independent free sample. Its revenue, stock and tax records need to reflect the supported arrangement.
Do not remove the third unit to promotion expense automatically while recording only the first two as cost of sales. Assess the scheme’s substance and apply the appropriate accounting policy consistently.
Retain the offer terms and invoice pattern. They help establish whether the business distributed samples with no consideration or sold a package under an agreed promotional price.
Separate demonstration goods expected back
A machine or product sent to a dealer temporarily for demonstration may remain the business’s asset or inventory, depending on the facts. Track location, custodian, return date and condition rather than expensing it as though it was consumed.
If the demonstration item later becomes permanently gifted, sold or damaged, record that later event with the relevant evidence. A warehouse dispatch note should not force all three outcomes into the same initial expense entry.
For reusable display assets, consider whether fixed-asset treatment is appropriate under the applicable recognition policy. A campaign code does not automatically make every physical item a current expense.
Control the quantity and campaign cost
Use a sample issue register showing product, batch, quantity, supported cost, campaign and recipient or distribution event. Reconcile it with warehouse issues and the promotion ledger.
For the illustrative hundred packs, an issue of only ninety-five packs leaves five still to be explained. They may remain in stock, have been damaged or be awaiting distribution. Charging all one hundred without checking can hide a quantity difference.
Where field staff hold sample stock, obtain periodic confirmations and settlement records. Transfers to staff are not always final distribution, so the stock location and expense-recognition procedure should be clear.
Keep evidence proportional and useful
Campaign approval, recipient lists where appropriate, dispatch records and sample acknowledgements can support the business purpose. Avoid recording unnecessary personal details in public or broadly accessible schedules.
A manager’s statement that samples “helped sales” is not a substitute for proof that the goods were issued. Equally, the absence of an immediate resulting sale does not prove that a genuine sample issue was personal consumption.
Review unusually large or repeated issues, especially near reporting dates. They may represent legitimate campaigns, but they deserve evidence rather than automatic posting to promotion expense.
Reconcile the final cost
The campaign cost should explain the stock consumed and any supported tax or distribution costs. Keep freight and packaging expenses identifiable where they are material to evaluating the campaign.
Unused campaign packs remain accountable
If sample packs are prepared but not yet issued, establish where they are held and whether they remain inventory under the applicable policy. A campaign approval for two hundred packs is not proof that all two hundred were distributed.
At campaign close, reconcile packs prepared, issued, returned, damaged and remaining. Record each actual outcome with its support instead of expensing the full approved quantity automatically.
A clear sample entry preserves the distinction between promotional consumption, ordinary sales and goods still owned by the business. That makes both marketing cost and inventory records more useful.