GST on vouchers and gift cards: All you need to know

Gift vouchers and prepaid cards have become popular payment tools for consumers, but their tax implications often raise questions. The Reserve Bank of India (RBI) classifies these as prepaid instruments, and the Central Board of Indirect Taxes and Customs (CBIC) has clarified their treatment under the Goods and Services Tax (GST) framework.

Here’s a breakdown of how GST applies to vouchers, along with insights for businesses.

PREPAID VOUCHERS: TREATED AS ‘MONEY’

Prepaid vouchers, including gift cards and digital wallets, are considered ‘money’ under the GST framework.

Transactions involving these instruments are not treated as the supply of goods or services. Instead, they are viewed as a method of payment, similar to cash, and therefore, exempt from GST.

NON-PREPAID VOUCHERS: ACTIONABLE CLAIMS

Non-prepaid vouchers, which allow holders to redeem specific goods or services, are classified as ‘actionable claims.’ These transactions are also excluded from GST since they do not involve the supply of goods or services.

GST ON VOUCHER TRANSACTIONS

While the vouchers themselves are not subject to GST, the goods or services redeemed using them may attract GST.

For instance, if a customer uses a Rs 10,000 voucher to purchase goods, GST applies to the purchased items, not the voucher.

VOUCHER DISTRIBUTION MODELS AND GST

Principal-to-Principal Basis:
Distributors buying vouchers at discounted rates and reselling them are not subject to GST since these transactions do not qualify as the supply of goods or services.

Commission/Fee Basis:
Distributors working on behalf of issuers and earning commissions for marketing or support services must pay GST on their service fees.

UNUSED VOUCHERS AND ADDITIONAL SERVICES

If vouchers expire unused, no supply of goods or services occurs, exempting them from GST. However, distributors offering additional services like advertising or customer support to voucher issuers must pay GST on their service fees.

The CBIC’s clarifications simplify voucher taxation but require businesses to understand their specific scenarios. While vouchers themselves don’t trigger GST, commissions and related services do.

Upcoming amendments to the GST framework may provide further clarity, ensuring businesses remain compliant and avoid ambiguities.

Source: INDIA TODAY