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Anil Tanwar | Jun 3, 2021 | Views 2216496

GST APPLICABILITY ON GIFT VOUCHERS | TAXABILITY OF GIFT VOUCHER UNDER GST

GST APPLICABILITY ON GIFT VOUCHERS | TAXABILITY OF GIFT VOUCHER UNDER GST

In today’s time, gift vouchers are playing an integral role and have become very popular. There are multiple situations where these vouchers can be issued. Some of them are E-vouchers issued by e-commerce websites, vouchers issued to employees, B2B vouchers given by companies to their franchisees and dealers.

In this article, we will understand the term gift vouchers and the different significant aspects of it in the light of GST.

UNDERSTANDING GIFT VOUCHERS

As per section 2(118) of the CGST Act, 2017, a voucher can be defined as:

“an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services or both and where the goods or services or both to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument”

Therefore, vouchers entitle consumers to avail discounts or buy goods and services from the issuer at redemption.

As per the judgment in Sodexo Coupons Civil Appeal Nos. 4385-4386 of 2015, the Hon’ble Supreme Court opined that vouchers are mere “payment instruments” and not ‘goods’ and they become taxable only when they are redeemed.

TYPES OF GIFT VOUCHERS

Broadly we find two types of Gift vouchers:

1. General Vouchers:

General Vouchers are eligible to be redeemed against multiple goods or services or both. Examples may include vouchers issued by health clubs or hotels, departmental stores, etc.

2. Specific Vouchers:

These are coupons that can be redeemed only against a specific good or service. Examples may include vouchers that can be redeemed at a grocery store only for the purchase of rice, vouchers that are redeemable at a salon only for haircuts. 

TWO ANGLES OF EXAMINATION

The impact of GST on both general and specific gift vouchers is examined by considering two angles which are Time of Supply & Value of Supply.

a. Time of Supply:

In a recent update, the AAAR clarified that GST would not be on the supply of vouchers but the underlying supply of goods/ services. The ruling came after Kalyan Jewellers India Ltd. had approached the AAAR against the ruling by the Tamil Nadu State Authority for Advance Ruling (AAR).

According to sections 12(4) and 13(4) of the CGST Act, 2017, Time of Supply is used to determine when the GST on supply becomes due and payable. Let’s discuss this in detail.

Section 12(4)

Section 13(4)

Time of supply of goods Time of supply of services
In case of the supply of vouchers, the time of supply should be:

I. The date of issue of voucher, if the supply is identifiable at that point.

II. The date of redemption, in all other cases

In case of the supply of vouchers, the time of supply should be:

I. The date of issue of voucher, if the supply is identifiable at that point.

II. The date of redemption, in all other cases

We can conclude that time of supply for vouchers redeemable against goods and services is the same.

b. Value of Supply:

As per Rule 32(6) of CGST Rules: Determination of Value of Supply, the value of the supply of the gift voucher will be equal to the money value of the goods or services redeemable against such voucher.

WHAT IF VOUCHERS EXPIRE BEFORE REDEMPTION?

The Hon’ble Supreme Court in the case of Sodexo Vs. Maharashtra. Civil Appeal Nos. 4385-4386 of 2015, the apex court ruled that such instruments become taxable only when redeemed against goods or services and not before that. It also signifies that any purchase/sales/trade/transaction of these vouchers between different firms or individuals shall not invite any indirect taxes.

Therefore, based on the facts and conclusion of the above case, an entity just involved in the purchase/sales/trade/transaction of gift vouchers will not be required to charge GST on sale to the ultimate consumer.

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