CBIC Clarifies Gift Vouchers, Cards Are Not Subject To GST

Gift cards or vouchers, whether recognised by RBI or not, including trading margins, will not be treated as goods or services and hence not liable to GST, the CBIC clarified in its latest circular.

However, additional services related to vouchers, such as marketing, customisation, or commission-based distribution, will continue to attract GST, it said.

The move follows the long-standing concerns regarding the taxability of gift cards and vouchers, as it is extensively used for corporate gifting and promotional activities.

The CBIC clarification is in line with the recommendations of the GST Council in its Dec. 21 meeting.

Addressing key concerns raised by trade and industry, CBIC clarified that transactions involving vouchers, whether as pre-paid instruments or actionable claims, do not constitute the supply of goods/services and are thus not liable to GST.

Similarly, unredeemed vouchers, or 'breakage,' are not taxable as they do not constitute consideration for any supply.

“It may, however, be interesting to see if the industry may explore claiming a refund of costs borne on GST already paid on such unredeemed vouchers. Overall, it's a significant development for the industry as it will help in bringing certainty of taxes and reduce undue litigation. said Saurabh Agarwal, Tax Partner, EY

Abhishek Jain, indirect tax head and partner, KPMG, says it will indeed provide relief for the industry, and rightly so, since when the vouchers are redeemed for any goods and services, the underlying goods/services in any case attract GST”.

The decision follows the Karnataka Authority for Advance Rulings, which previously ruled that vouchers were taxable as goods in the case of Premier Sales Corp.

This apart, through two separate circulars, CBIC put out clarification on the non-requirement for making a reversal of input tax credit on supplies where tax is paid by electronic commerce operators or ECOs. The move helps rest ambiguity for the industry, specifically after the earlier clarification only explicitly covering restaurant services.

There was uncertainty about whether electronic commerce operators (ECOs) are required to reverse input tax credit (ITC) for notified supplies (such as restaurant services) for which they are liable to pay tax under GST legislation and on which ITC is not allowed.

The CBIC has clarified that ECOs are not required to reverse ITC for such supplies. However, the full tax liability on these notified supplies must be discharged by them through the electronic cash ledger.

“This clarification provides much-needed certainty, resolving confusion around ITC reversal for notified supplies and enhancing clarity in compliance and the overall GST framework. Additionally, ITC can still be utilised for other tax liabilities arising from the ECO's own services, such as platform fees or commissions charged to platform users, Agarwal said.

Another circular with respect to those in sectors like automotive, heavy engineering, EPC contracts, and others who are facing difficulties in claiming ITC on goods purchased on an ex-works basis.

The CBIC clarified that for goods purchased under "Ex-Works" contracts (where the buyer arranges transportation from the seller's factory), ITC can be claimed from the date of the invoice itself. This is because under these contracts, the goods are considered "delivered" to the buyer when they are handed over to the transporter at the seller's factory gate.