Free goods and trade schemes: how to cost 10+1, and what GST does with it
Indian distribution runs on schemes. Ten plus one. Buy a hundred, get twelve. Buy five cases, get a case free.
They are everywhere, they are often genuinely good value, and they quietly wreck two things: your cost per unit and your stock count.
Free units are not free
A scheme does not reduce the price of what you bought. It increases what you received for the same money.
Buy 100 units at ₹50 and take in 12 free:
spend ₹5,000, units received 112, cost per unit ₹44.64
Not ₹50. Not ₹44.64 for the free ones and ₹50 for the rest — one cost, across everything that came in — the weighted average of what you spent, because you cannot tell them apart on the shelf and you will not sell them differently.
Get this wrong in either direction and it hurts:
Cost the free units at zero and value them separately. Now you have 12 units at ₹0 and 100 at ₹50. The first twelve you sell look like pure profit and the rest look thin. Your margin per sale depends on the order you happen to pick cartons, which is nonsense.
Ignore the free units entirely. Cost stays at ₹50 and your stock count is 12 units short. Every stock take disagrees with the system and eventually someone stops trusting the system.
What the scheme is actually worth
The headline "10+1" is not a discount percentage, and comparing schemes by their headline is how distributors end up with a year of cover on something.
Convert every scheme to a cost per unit:
| Scheme | Buy | Free | Spend at ₹50 | Units in | Cost/unit | Effective |
|---|---|---|---|---|---|---|
| 10+1 | 10 | 1 | ₹500 | 11 | ₹45.45 | 9.1% |
| 10+2 | 10 | 2 | ₹500 | 12 | ₹41.67 | 16.7% |
| 100+12 | 100 | 12 | ₹5,000 | 112 | ₹44.64 | 10.7% |
| 5% cash discount | 100 | 0 | ₹4,750 | 100 | ₹47.50 | 5.0% |
Note that 10+1 is 9.1 per cent, not 10. The free unit is one of eleven you received, not one of ten you paid for. People routinely overstate scheme value by getting this backwards.
And note the trap in the table: 100+12 looks better than 10+1 and it is, marginally — but it commits you to ten times the stock. If you sell four a month, the 10+1 is the better deal and the 100+12 is two years of cover.
The rule: compare cost per unit, then check cover before you take the bigger one.
Free goods and GST
Two separate questions, often confused.
On what you receive. The supplier bills 100 units and shows 12 free. GST is charged on the taxable value of what was billed. Your input tax credit is on that tax, and it is not affected by the free units having no value. Nothing special to do.
On what you give away. This is where it gets careful. Where goods are supplied free as part of a scheme, the position depends on whether it is a genuine quantity discount established in the terms of supply — in which case it is part of the same supply — or a separate free supply, where credit on the inputs may need to be reversed.
The safe practice, and the one most distributors follow:
- Write the scheme into the terms before the period starts. A scheme documented in advance and shown on the invoice is a quantity discount on a supply, and is much easier to defend than one decided afterwards.
- Show the free quantity on the invoice, in its own column, rather than hiding it by inflating the billed quantity or dropping the rate. The bill should say what happened.
- Do not treat "free" as "invisible". The units exist and they moved.
If your schemes are large or unusual, this is worth ten minutes with your CA rather than a blog post. The general shape above is standard practice; the edges are genuinely fact-specific.
What it does downstream
Once cost per unit is right, two things become answerable that mostly are not:
Did the scheme actually help? Cost per unit before the scheme, cost per unit after, and how long the extra stock took to clear. A scheme that dropped your cost 10 per cent and took eight months to sell through was a loan to your supplier at your expense.
What is your real margin? If cost per unit is inflated because free goods were ignored, every margin figure is understated and you will price higher than you need to — and lose orders you could have won.
Where the numbers usually go wrong
On the bill. Free quantity is printed in its own column on most supplier invoices, and it is one of the first things lost when a bill is typed in a hurry or read badly. A blank Free column becomes zero, twelve units vanish, and nothing ever contradicts it because the money side still balances.
The check is simple and worth doing: units received should equal billed quantity plus free quantity, and your stock should move by the total, not by the billed figure.
Where Dhela fits
Dhela reads the Free column as its own field, adds billed and free units together into stock, and divides the money you actually spent across all of them — so a 10+1 shows as ₹45.45 a unit rather than ₹50, and your stock count matches the cartons.
It shows cost per unit on every purchase line next to the printed rate, which on a bill with a large trade discount are very different numbers.
Free plan, no card. dhela.in
General information, not tax advice. The GST treatment of free supplies is fact-specific — take advice on your own schemes.