CBIC issued clarification says no GST applicable on Pre-paid Gift Vouchers and Cards [Read Circular]

The Central Board of Indirect Taxes and Customs (CBIC) recently issued clarification that provided insights into the GST treatment of transactions involving vouchers. As per CBIC, vouchers can be classified into two types.

The first group includes Reserve Bank of India approved prepaid instruments such as gift cards and digital wallets. These vouchers are treated as ‘money’ under the GST framework, thus transactions using them are not categorised as the supply of goods or services.

The second category includes non-prepaid vouchers, which are not classified as prepaid instruments. These vouchers function as claims for certain goods or services and are classified as ‘actionable claims’. These transactions, like their prepaid counterparts, do not count as a supply of goods or services for GST purposes.

The CBIC stated that, regardless of the form of voucher, transactions involving vouchers will not be considered the supply of goods or services. However, the items or services that can be redeemed with these vouchers may still be liable to GST. CBIC also issued key guidance on how GST applies to transactions involving vouchers distributed by distributors, sub-distributors, and agents.

The CBIC proposed two main models for voucher distribution:

• Principal-to-principal basis: In this model, distributors buy discounted vouchers from issuers and resell them to sub-distributors or consumers, profiting from the price differential. These transactions are exempt from GST since they do not constitute the supply of goods or services.
• Commission/fee basis: In this model, distributors and agents represent the voucher issuer by offering marketing and support services in exchange for a commission or charge. Because these agents do not own the vouchers and work under the issuer’s instructions, GST will be levied on the commission or fees earned, as it is deemed a supply of services.

In terms of GST for additional services and unused vouchers, the CBIC stated that distributors or other service providers who provide services such as advertising, co-branding, or customer assistance to voucher issuers may charge a service fee. This fee is subject to GST, which means businesses must pay tax on it at the applicable rates.

Concerning unused vouchers, the CBIC stated that when coupons remain unused after their expiry date, known as breakage, there is no supply of goods or services, and hence the money from these unredeemed vouchers is not taxable under GST.

The CBIC emphasised that for any payment to be taxable, the parties must have a clear understanding. Businesses are exempt from paying GST on unredeemed vouchers because there is no such agreement in place.

To Read Official Circular Download PDF Given Below: