Does GST apply to pre-paid gift vouchers and cards? Know what the rule says
New Delhi, Feb 11, 2025
GST exemption also makes vouchers more appealing to consumers, who can redeem them without the worry of extra taxes, potentially increasing footfall in both physical stores and online platforms
Recent announcements and clarifications from the Central Board of Indirect Taxes and Customs (CBIC) and High Court rulings have addressed the applicability of the Goods and Services Tax (GST) on gift vouchers and cards, bringing the much-needed clarity to the retail and corporate sectors.
“The Central Board of Indirect Taxes and Customs (CBIC) has stated in a recent announcement via circular number 243/37/2024 that gift vouchers and cards will not be charged Goods and Services Tax (GST). It was mentioned by the Central Board of Indirect Taxes and Customs (CBIC) the way the Goods and Services Tax (GST) applies to voucher transactions,” said Rajarshi Dasgupta, executive director-Tax, AQUILAW.
“This means that when you procure a voucher or gift voucher, then GST is not chargeable. When the voucher is redeemed, then only applicable GST on the goods and service you procure, will be charged. Voucher/gift cards are modes of settlement and not liable to GST at the time of sale,” Dasgupta said.
Regarding unused vouchers, when vouchers go unused after their expiry date, known as breakage, the CBIC clarified that since these vouchers are not redeemed, there is no supply of goods or services, and therefore, the money from these unredeemed vouchers is not taxable under GST.
“GST on gift cards and vouchers depends on their classification. For single-purpose vouchers (SPVs)—where the underlying goods or services and their tax rates are known at the time of issuance—GST is payable at the time of sale. However, for multi-purpose vouchers (MPVs)—which can be redeemed across multiple products or services with varying tax rates—GST is applied at the time of redemption. This distinction is crucial for businesses, as it impacts tax compliance, cash flow, and reporting obligations. While gift cards are often seen as cash equivalents, their GST treatment requires careful consideration to ensure regulatory adherence,” said Amit Bansal, partner, Singhania & Co.
High court clarification
The Madras High Court has clarified the levy of GST on gift vouchers, stating that a ‘gift voucher’ is an ‘actionable claim’ (enforceable debt), not constituting a supply of goods or services under Schedule III of the CGST Act, 2017. The court held that tax liability is determined based on the inherent nature of the transaction. Only if gift vouchers are issued for specified or identified goods and for a specified value is GST payable at the time of issuance. In cases where the goods or services remain unidentified for future purchase, GST is only applicable at the time of sale, i.e., upon redemption.
Impact of voucher exclusion from GST
Vouchers have long been an effective tool for businesses in sectors such as retail, e-commerce, and hospitality to enhance customer engagement. The CBIC’s long-awaited clarification that vouchers will not attract GST offers significant advantages for businesses by improving cash flows through reduced tax liabilities. This GST exemption also makes vouchers more appealing to consumers, who can redeem them without the worry of extra taxes, potentially increasing footfall in both physical stores and online platforms.
E-commerce platforms, which heavily incorporate vouchers into their sales strategies, stand to gain a competitive edge. The removal of GST on vouchers is likely to encourage these companies to issue more vouchers or gift cards, even for specific products, without the burden of additional tax liabilities. For individuals using gift vouchers for personal or corporate gifting, this non-taxable status makes them a more economical choice, rendering gifting both more affordable and accessible.
[The Business Standard]
