Vouchers, serving as instruments for redeeming specific or multiple goods and/or services, have become integral to modern marketing strategies. Companies increasingly use gift vouchers and prepaid instruments as incentives to reward channel partners, customers and employees for meeting predefined targets. In the electronic commerce space, vouchers have become a widely used tool to enhance customer engagement, drive sales, and optimize loyalty programs. However, the taxability of vouchers under the Goods and Services Tax (GST) regime has been a contentious issue, leading to confusion among stakeholders. With their growing popularity, it is essential to examine the GST implications associated with the supply of these vouchers and gift cards.
Definition and Nature of Vouchers under GST
Under the GST law, a voucher is defined as an instrument that creates an obligation on the seller to accept it as full or partial consideration for a supply of goods or services. For buyers registered under GST, vouchers can be considered as payment instruments used for procuring goods and/or services. The key question is whether vouchers should be classified as goods, services, or something else entirely.
Conflicting Rulings and Clarifications on Vouchers under GST
The taxability of vouchers under GST has seen various conflicting rulings:
1. Premier Sale Promotion Private Limited (Karnataka High Court): The high court held that vouchers, being pre-paid payment instruments (PPIs), are neither goods nor services and hence, outside the levy of GST.
2. Myntra Designs (P.) Ltd. (Karnataka AAAR): This ruling followed the Karnataka High Court’s view, stating that vouchers are neither goods nor services. Hence, no GST on vouchers.
3. Kalyan Jewellers India Ltd. (Tamil Nadu AAAR followed by High Court Ruling): On the contrary, the Tamil Nadu AAAR held that vouchers represent advance payment for underlying goods or services and should be taxed at the rate applicable to the underlying supply. On appeal before the High Court, the decision of AAAR was reversed. It was observed that gift card vouchers are nothing but ‘debt instruments’. They can be redeemed at a future date on their presentation towards ‘Sale Consideration’ for the purchase of merchandise from any retail outlet. Accordingly, it was held that gift vouchers are treated as neither ‘Supply of Goods’ nor ‘Supply of Services’ but as actionable claims. Therefore, vouchers are not liable to tax in view of Section 7(2) (a) read with Entry 6 in Schedule III of the CGST Act, 2017.
CBIC Clarification on voucher’s taxability under GST
To resolve these conflicting views, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular on December 31, 2024. It is important to understand that prior to this clarification, there was ambiguity on GST applicability on supply of voucher or gift card amid conflicting advance rulings by different states. The circular provides significant clarifications:
1. Vouchers as Pre-paid Instruments: If vouchers are recognized as pre-paid instruments by the Reserve Bank of India (RBI), they fall under the definition of ‘money,’ which is excluded from the definition of goods and services. Consequently, transactions involving such vouchers are neither a supply of goods nor a supply of services.
2. Vouchers as Actionable Claims: If vouchers are not recognized as pre-paid instruments by the RBI, they create an obligation on the supplier and may be considered ‘actionable claims.’ Since these are not specified actionable claims, they fall under Entry 6 of Schedule III of the CGST Act, which excludes them from being goods or services.
The CBIC has further outlined the GST treatment for different voucher distribution models:
1. Principal-to-Principal Model: Transactions between distributors and sub-distributors are not subject to GST, as vouchers are neither goods nor services.
2. Commission/Agency Model: Agents facilitating voucher distribution on behalf of issuers are subject to GST on the commission or fees earned. The facilitation service provided by these agents against the commission or fee is treated as a supply of services.
GST Treatment of Unredeemed Vouchers (Breakage)
The CBIC has clarified that unredeemed vouchers, often referred to as ‘breakage,’ do not constitute a supply of goods or services. Therefore, the amount attributable to unredeemed vouchers is not taxable under GST. This clarification provides significant relief to companies that issue vouchers, as they were previously liable to pay tax on unused vouchers.
GST Treatment of Additional Services
The CBIC also clarified that additional services like advertising, co-branding, or marketing provided to voucher issuers are taxable under GST at the applicable rate in the hands of the service provider.
Further, to resolve the ambiguity and minimize the litigations, the Union Budget 2025 has proposed omission of relevant GST provisions for determining of the time of supply and valuation mechanism of vouchers as these provisions may no longer be relevant.
Impact of Voucher Exclusion from GST on Consumers and Industries
For businesses, vouchers have long been a powerful tool to boost customer engagement in sectors like retail, e-commerce, and hospitality. The CBIC’s much-awaited clarification regarding no GST being leviable on vouchers offers significant benefits for businesses, particularly by improving cash flows through reducing tax liabilities. The no GST position further increases their appeal by enabling consumers to redeem vouchers without the concern of additional taxes, likely driving higher footfall in both physical stores and online platforms.
E-commerce platforms like Flipkart and Amazon, which rely heavily on vouchers as part of their sales strategies, also gain a competitive edge. The exclusion of vouchers from the levy of GST will encourage companies to issue more vouchers or gift cards even for specific products without worrying about additional tax liability. For individuals using gift vouchers for personal gifting or corporate purposes, the non-taxability makes them a more economical option. Without additional tax implications, gifting becomes more affordable and accessible.
Looking ahead, it remains to be seen if the industry will explore the possibility of refund claims for GST previously paid on unredeemed vouchers. Overall, the CBIC’s clarification represents a significant step forward, providing much-needed tax certainty, reducing compliance burdens, and minimizing unnecessary litigation. This development creates a win-win scenario, benefiting both businesses and consumers while fostering trust and efficiency in the system.
The article is written by Kishore Kumar, Lead-GST, Taxmann and Divya Jain, Assistant Manager, Taxmann.
