Govt considering some relief from GST on Vouchers and Gift Cards

In a recent move, the Indian government is considering potential relief from the assessment of goods and services tax (GST) on vouchers or gift cards provided by businesses and merchants, with the goal of addressing the issue of double taxation in certain cases. The decision should bring much-needed clarity to the taxation of these popular advertising tools.

Many shops and companies provide its customers vouchers or gift cards that can be exchanged for goods or services. The issue arises when GST is imposed at the time of purchase of these vouchers, resulting in double taxation when they are used to purchase goods or services that are already subject to GST.

The proposed clarification seeks to address this issue by proposing that vouchers and gift cards be exempt from tax on sales. Furthermore, it is likely to establish how companies’ vouchers that are traded or sold to distributors or dealers should be taxed.

A government official confirmed that the problem is being investigated, adding that the GST Council would make the ultimate decision on the clarification, with the law committee already studying the matter.

Types of Vouchers

The main issue is the taxation of multi-purpose or non-identifiable vouchers that can be redeemed for a variety of goods or services.

According to current practises, when these vouchers are provided, they are taxed at the corresponding GST rate, which industry analysts claim results in double taxation. They propose that these vouchers be taxed only when redeemed, based on the GST slab applicable to the goods or services purchased.

In contrast, single-purpose or identified vouchers, which may only be redeemed for certain products or services, are taxed at the time of issuance because the nature of the goods or services is known in advance.

Levy on Entire Face Value

Another issue under consideration is the levy of tax on the entire face value of the vouchers, rather than simply the commission, as is typical in the industry when vouchers are transferred.

Earlier Ruling and Industry Concerns

The Karnataka Authority for Advance Rulings issued a ruling in 2021 that caused confusion about the taxability of vouchers. This decision classified vouchers as goods and subjected them to taxation. While the Appellate Authority for Advance Rulings first affirmed the verdict, it was eventually overruled by the Supreme Court.

However, the initial decision of the Appellate Authority prompted several jurisdictions to levy GST and demand back taxes for the period preceding the AAR ruling’s overturn.

The sector has raised concern about the potential tax burden, which could have a considerable impact on the use of vouchers, which frequently have low profit margins. Industry leaders have raised concerns about taxing at several phases of the gift card or voucher distribution chain, including distribution/trade margins and the value of unredeemed vouchers.

Need for Clarification

To address these issues and avoid unjustified double taxation involving voucher payments, experts have requested a full clarification from the GST Council. This clarification should provide guidance on whether vouchers are “actionable claims” and do not trigger GST liability.

In conclusion, the government’s consideration of offering GST relief on vouchers and gift cards is an important development that strives to provide much-needed clarification on the taxation of these frequently utilised promotional tools. A well-defined and detailed clarification from the GST Council will be essential for maintaining fair and uniform taxation practises in this area.