Proper Way to Free Memory of a Returned Variable

It’s quite simple, as long as you pass to free() the same pointer returned by malloc() it’s fine.

For example

char *readInput(size_t size)
 {
    char *input;
    int   chr;
    input = malloc(size + 1);
    if (input == NULL)
        return NULL;
    while ((i < size) && ((chr = getchar()) != '\n') && (chr != EOF))
        input[i++] = chr;
    input[size] = '\0'; /* nul terminate the array, so it can be a string */
    return input;
 }

 int main(void)
  {
     char *input;
     input = readInput(100);
     if (input == NULL)
         return -1;
     printf("input: %s\n", input);
     /* now you can free it */
     free(input);
     return 0;
  }

What you should never do is something like

free(input + n);

because input + n is not the pointer return by malloc().

But your code, has other issues you should take care of

1. You are allocating space for MAX_SIZE chars so you should multiply by sizeof(char) which is 1, instead of sizeof(char *) which would allocate MAX_SIZE pointers, and also you could make MAX_SIZE a function parameter instead, because if you are allocating a fixed buffer, you could define an array in main() with size MAX_SIZE like char input[MAX_SIZE], and pass it to readInput() as a parameter, thus avoiding malloc() and free().

2. You are allocating that much space but you don’t prevent overflow in your while loop, you should verify that i < MAX_SIZE.