Gift cards in India have a unique classification under the CGST Act. Unlike goods, they are considered vouchers. According to the act, a voucher is an instrument accepted as consideration or part consideration for a supply of goods or services. In the case of gift cards, their value is deemed the redemption value.
The GST rate applicable to gift cards depends on the goods or services they can be redeemed for. If the voucher is for a product or service that includes GST, the purchase is GST-reportable. However, if the voucher does not specify a particular product or service, GST should be reported and paid when the gift card is redeemed.
It's worth noting that if a gift card expires before it is redeemed, the unredeemed amount should still be reported as income, and the GST component should be paid. However, trading or selling gift cards between different parties does not incur any GST, meaning organisations involved in the transaction, purchase, sale, or trading of gift cards are not required to charge GST on the sale of gift cards to customers.
Categorization of Gift Cards
Gift cards in India are categorised as vouchers under the CGST Act. A voucher is an instrument that is accepted as consideration or part consideration for a supply of goods or services. In the case of gift cards, they entitle customers to buy goods or services or avail discounts from the issuer at the time of redemption. Therefore, the issuance of gift cards by the issuer is considered a supply and is subject to GST.
The rate of GST on a gift card will depend on the goods or services it can be redeemed for. The value of the gift card is considered the redemption value, and the applicable GST rate will be based on the classification of the goods or services. For example, if the gift card can be redeemed for goods or services that include GST, the purchase using the gift card will be GST-reportable. On the other hand, if the gift card can be redeemed for goods or services that do not have a specified GST rate, GST should be reported and paid when the gift card is redeemed.
It is important to note that trading or selling gift cards between different parties does not incur any GST. This means that organisations involved in the transaction, purchase, sale, or trading of gift cards are not required to charge GST on the sale of gift cards to customers.
GST Implications for Different Types of Gift Cards
Under the GST regime in India, different types of gift cards have varying implications for GST. Let's explore the taxability of different categories of gift cards:
- Gift cards issued by multi-brand retailers can be redeemed for merchandise from their respective brands.
- These gift cards are classified as vouchers and are subject to GST.
Closed System PPIs
- Closed system PPIs are issued by specific entities and can only be used for purchasing goods and services from those entities.
- They do not allow cash withdrawal and are not considered payment systems requiring approval from the Reserve Bank of India.
- Closed system PPIs are not subject to GST.
Semi-Closed System PPIs
- Semi-closed system PPIs can be used for purchasing goods and services at specific merchant locations or establishments.
- They do not allow cash withdrawal and can be issued by both banks and non-bank entities.
- Like closed system PPIs, semi-closed system PPIs are not subject to GST.
Open System PPIs
- Open system PPIs, issued only by banks, can be used at any merchant for purchasing goods and services.
- They allow cash withdrawal at ATMs, point of sale, and business correspondents.
- Open system PPIs are subject to GST, as they function as a payment instrument for a wide range of transactions.
It is important to consider the nature of the gift card and its purpose when determining its taxability under GST. Different types of gift cards are treated differently based on whether they are single-purpose vouchers or multi-purpose vouchers, and whether the transaction involves the supply of goods or services. Understanding the GST implications for each type of gift card is crucial for retailers, customers, and issuers alike.
Judicial Decisions on the Taxability of Vouchers
In India, there have been significant judicial decisions regarding the taxability of vouchers. The Supreme Court has ruled that certain vouchers, such as food vouchers for employees, are not considered goods and are therefore not subject to VAT or LBT. According to the court, vouchers are considered payment instruments and become taxable only when they are actually redeemed. This ruling provides clarity on the tax treatment of such vouchers and establishes that they do not attract GST liability until the point of redemption.
In another ruling, the Karnataka High Court has set aside and quashed an order that previously classified vouchers as goods subject to tax. The court opined that vouchers are akin to pre-deposit instruments and do not fall under the category of supply of goods or services. This decision further strengthens the position that vouchers should not be treated as taxable goods.
However, it's worth noting that the issue of whether vouchers are actionable claims under GST is still awaiting clarification from higher courts. The determination of tax liability for vouchers may depend on various factors, including the intrinsic nature of the transaction and the intention of the parties involved. It is important to consider these factors when assessing the taxability of vouchers in specific cases.
Judicial Decisions on the Taxability of Vouchers
Judicial decisions in India have established that vouchers, such as food vouchers for employees, are not considered goods and are not subject to VAT or LBT. Vouchers are regarded as payment instruments and become taxable only upon redemption. Furthermore, the Karnataka High Court has ruled that vouchers should not be classified as goods subject to tax, as they resemble pre-deposit instruments. However, the question of whether vouchers are actionable claims under GST is still awaiting clarification. The determination of tax liability for vouchers depends on factors such as the transaction's intrinsic nature and the parties' intention.