The applicability of GST Provisions on vouchers has always been a matter of litigation wherein GST officials take different opinions creating ambiguity and litigations. Several questions are prevailing in the Industry to the taxability of vouchers such as:
To address the challenges faced by the trade and industry, the CBIC has issued the circular addressing various issues related to the applicability of GST provisions on vouchers vide circular No. 243/37/2024-GST dated 31st December 2024 wherein the following clarification is provided:
“voucher” means an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services or both and where the goods or services or both to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument.”
Read Also: Clarification on Place of Supply of Online Services Supplied to Unregistered Recipients
Conclusion: Therefore, whether the voucher is a PPI, as recognized by the RBI, or not, the transactions in the voucher themselves cannot be considered either as a supply of goods or as a supply of services. However, the supply of underlying goods or services, for which vouchers are used as consideration or part consideration, may be taxable under GST.
The distribution of vouchers operates on the following two models:
There may be cases where additional services such as advertisement, co-branding, etc are provided by any person to the voucher issuer against a service fee. In such a case, charges for the supply of such additional services to the voucher issuer would be liable to GST at the applicable rate in the hands of the said service provider.
The business generally makes adjustments to unredeemed vouchers in their statement of income. The value of such unredeemed vouchers accounted for in the statement of income is called breakage.
The ambiguities is whether the amount attributed to the unredeemed voucher(breakage) can be considered as “the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person”.
As per section 9 (1) of the CGST Act, GST is leviable only on the supply of goods or services. In the case of breakage, there is no redemption of the voucher and there is no supply of underlying goods or services. Therefore, there is no supply of goods or services on account of such unredeemed vouchers (breakage). Accordingly, such an amount attributable to unredeemed vouchers (breakage) would not be taxable as per the provisions of section 9(1) of the CGST Act.
Further, Circular No. 178/10/2022-GST dated 03.08.2022 clarifies that an agreement to do or refrain from an act should not be presumed to exist and that there must be an express or implied agreement for a taxable supply to exist. The amount attributable to non-redemption of the voucher (breakage) would not constitute a “monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person”. Therefore, no GST appears to be payable on such an amount attributable to non-redemption of the voucher (breakage).
Clarification is a welcome move by the industry as it will help in clarifying the applicability of GST provisions on the issuance of vouchers. Clarification that no GST applies on the supply of vouchers on principal to principal basis will bring relief to the industry and GST on the commission fee of the sub-distributors or agents will bring clarity among GST officials and the Industry.