Gift Vouchers won’t attract GST; Clarity on GST spurs industry optimism

During its 55th meeting in Jaisalmer, the GST Council clarified that transactions using vouchers will not be recognised as a sale of goods or services, and hence will not be taxed under the Goods and Services Tax (GST) framework, according to sources.

The decision of GST Council to exempt gift vouchers from indirect taxation has provided much-needed clarity to the retail and business sectors, with industry leaders hailing the move as a significant step forward.

The ruling comes in response to retail industry pleas for clarification after the Karnataka Authority for Advance Rulings previously declared that vouchers were taxable as goods in the Premier Sales Corp. case. The new rule provides relief to companies and retailers who commonly use vouchers for promotions.

The clarification of council follows recommendations from its law panel, which ruled that vouchers that are defined as prepaid instruments by the Reserve Bank of India (RBI) and are used as consideration to fulfil commitments and should not be taxed, according to officials.

If vouchers are not recognised as consideration, they fall into the category of “actionable claims,” which are likewise non-taxable.

The GST Council’s recommendation to remove Sections 12(4) and 13(4) of the CGST Act, as well as Rule 32(6) of the CGST Rules, is an excellent resolution to this issue.

According to an industry association official, one of the primary reasons for the decision was the impracticality of levying GST on coupons, particularly on e-commerce platforms.

“On platforms such as Amazon, a gift voucher can be used to purchase any product, each with a different GST rate. Furthermore, identifying the correct tax rate on expired vouchers was practically impossible,” the official stated.

Experts anticipate this exemption would not only make compliance easier but will also encourage more people to use vouchers in retail and hospitality sectors.

The jewellery industry, where gift vouchers are already popular, expects the change to accelerate digitalisation. This decision will assist to formalise the business, boosting digitalisation, and making gold vouchers more accessible to middle-class customers.

Industry stakeholders believe that the GST exemption will streamline processes, lower costs, and stimulate more usage of gift vouchers, benefiting both businesses and consumers.