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A host of retailers offer vouchers or gift cards to customers that can be redeemed for their products. A clarification on the issue is expected shortly, people familiar with the matter told ET.
Some vouchers have GST levied on them at the time of purchase, which leads to double taxation when they are used to buy goods or services that also include the tax. The proposed clarification is expected to clear the air on the taxability of vouchers and gift cards, suggesting they should not be taxed at the point of sale. It is also likely to spell out taxation of vouchers that are tradeable or sold to distributors or dealers by companies.
“It is being examined,” said a government official.
A final call on the clarification would be taken by the GST Council, the official said, adding that its law committee is looking into the issue.
The issue largely pertains to the taxation of multi-purpose or non-identifiable vouchers, which can be redeemed for any goods or services. Services or the goods paid for by these vouchers face tax at the applicable rate. The industry maintains that these vouchers should be taxed only at the time of redemption at the applicable GST slab on the goods or services purchased and not at the time of their issuance as it would lead to dual taxation.Single-purpose or identifiable vouchers can be redeemed for the goods they have been issued for and, since the goods or services to be purchased are known, face tax at the time of their issuance. Additionally, the levy of tax on the entire face value instead of just the commission in case the vouchers are traded, a common practice followed by the industry, is also being examined.
Confusion on the taxability of vouchers, which are a popular promotional tool for companies, followed a 2021 ruling by the Karnataka Authority for Advance Rulings in the case of Premier Sales Promotion Pvt Ltd. This held that vouchers were goods and taxable.
The ruling, upheld by the Appellate Authority for Advance Rulings, was subsequently turned down by the high court.
However, the appellate authority decision prompted authorities in some jurisdictions to impose GST and raise demands for the period before the AAR ruling.
Industry Raises Concerns
Industry has sought clarity as the levy of tax could mean the end of this tool that operates on low margins. It has flagged concerns over the levy of tax at each leg of the distribution of the gift cards or vouchers, including distribution or trade margins and breakage value of unredeemed vouchers.
A detailed clarification must be issued by the GST Council to avoid unwarranted two-way taxation involving payment through vouchers, said PwC partner Pratik Jain. This should include whether and in what case they would qualify to be “actionable claims,” he said.
“Arguably vouchers are just a mode of payment of consideration. This aspect has been accepted by courts in some cases as well,” Jain said.
“The GST Council needs to clarify that vouchers are actionable claims and trading in vouchers and the margins earned therein does not evoke any GST liability,” said Bipin Sapra, partner, tax and regulatory services, indirect tax, EY.
Breakage income does not entail a supply and is not liable to GST in the current structure of law, Sapra added.
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