GST on vouchers and gift cards? Here's everything you need to know

The Reserve Bank of India (RBI) categorizes them as prepaid instruments, while the Central Board of Indirect Taxes and Customs (CBIC) has provided detailed clarifications on their treatment under the Goods and Services Tax (GST) framework.

Gift cards and prepaid cards have massive immense popularity among consumers as convenient payment methods. However, the tax implications surrounding these instruments often lead to confusion. The Reserve Bank of India (RBI) categorizes them as prepaid instruments, while the Central Board of Indirect Taxes and Customs (CBIC) has provided detailed clarifications on their treatment under the Goods and Services Tax (GST) framework.

Prepaid vouchers: Treated as 'Money'

Prepaid vouchers, such as gift cards and digital wallets, are classified as 'money' under the GST regulations. These transactions are not considered the supply of goods or services but rather as payment methods akin to cash. As a result, they are exempt from GST.

Non-prepaid vouchers: Actionable claims

Unlike prepaid vouchers, non-prepaid vouchers allow users to redeem specific goods or services and are categorized as 'actionable claims.' Since these do not constitute the supply of goods or services, they are also exempt from GST.

GST on voucher redemptions:

Although vouchers themselves are exempt from GST, the goods or services purchased using them are subject to GST. For example, if a customer redeems a Rs 10,000 voucher to buy items, GST will be levied on the purchased goods or services, not on the voucher.

Distribution models and GST implications:

Principal-to-principal basis:
When distributors purchase vouchers at discounted rates and resell them, these transactions are not deemed as the supply of goods or services, exempting them from GST.

Commission or fee basis:
Distributors earning commissions for marketing or support services on behalf of issuers must pay GST on their service fees.

Unused vouchers and ancillary services:

Unused vouchers that expire do not lead to the supply of goods or services, making them GST-exempt. However, if distributors provide additional services such as advertising or customer support to voucher issuers, GST applies to the service fees.