As a part of promotional activities, the trend of issuing prepaid vouchers, coupons or gift cards has reached new heights. Though these terms are interchangeably used in the common parlance, GST implications on the same are different. In this article, author has analysed different kinds of transactions and GST implications on vouchers, coupons, gifts cards etc.
Brief GST history :
Definition of vouchers has been added to the GST Act which was not there in the Model GST Law. Time of supply provisions for vouchers have also been provided under GST Act. The definition under GST Act has been borrowed from European Union Council Directives.
Section 2(118) of CGST Act, 2017 defines voucher as 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
Hence, following are the essential conditions to treat the instrument as voucher under GST –
i) Such instrument shall create an obligation to accept it as consideration or part consideration.
ii) Obligation to accept such instrument as consideration shall for a supply of goods or services.
iii) Goods or services or both to be supplied or the identities of potential suppliers are indicated on such instrument itself or in related documentation.
Hence, it is pertinent to note that such voucher shall entitle the holder to use it for redemption against goods or services and supplier is under obligation to accept it as a consideration or part consideration. However, vouchers which entitles the holder for a discount on purchase of goods or services, in the opinion of author, shall not be treated as voucher within the meaning of section 2(118). Tax treatment of such discount voucher would be analysed separately.
Regulations for voucher in India :
Entire payment system effected between a payer and a beneficiary is governed in India under Payment and Settlement Systems Act, 2007 by Reserve Bank of India. Such instruments or vouchers can only be issued with prior approval of the RBI. Let’s discuss few important terms defined under Guidelines issued by RBI and analyse the same –
2.1 Issuer: Entities operating the payment systems issuing PPIs to individuals / organisations. The money so collected is used by these entities to make payment to the merchants who are part of the acceptance arrangement and for facilitating funds transfer / remittance services.
2.2 Holder: Individuals / Organisations who obtain / purchase PPIs from the issuers and use the same for purchase of goods and services, including financial services, remittance facilities, etc.
2.3 Prepaid Payment Instruments (PPIs): PPIs are payment instruments that facilitate purchase of goods and services, including financial services, remittance facilities, etc., against the value stored on such instruments. PPIs that can be issued in the country are classified under three types viz. (i) Closed System PPIs, (ii) Semi-closed System PPIs, and (iii) Open System PPIs.
2.4 Closed System PPIs: These PPIs are issued by an entity for facilitating the purchase of goods and services from that entity only and do not permit cash withdrawal. As these instruments cannot be used for payments or settlement for third party services, the issuance and operation of such instruments is not classified as payment systems requiring approval / authorisation by the RBI.
2.5 Semi-closed System PPIs: These PPIs are used for purchase of goods and services, including financial services, remittance facilities, etc., at a group of clearly identified merchant locations / establishments which have a specific contract with the issuer (or contract through a payment aggregator / payment gateway) to accept the PPIs as payment instruments. These instruments do not permit cash withdrawal, irrespective of whether they are issued by banks or non-banks.
2.6 Open System PPIs: These PPIs are issued only by banks and are used at any merchant for purchase of goods and services, including financial services, remittance facilities, etc. Banks issuing such PPIs shall also facilitate cash withdrawal at ATMs / Point of Sale (PoS) / Business Correspondents (BCs).
Let’s analyse these systems with help of chart :
|Closed System PPIs||Semi‐closed System PPIs||Open System PPIs|
|Facilitates the purchase of goods and services from issuer only.||Facilitates the purchase of goods and services from a group of clearly identified merchant locations or establishments.||Facilitates the purchase of goods and services from any merchant.|
|Do not permit cash withdrawal.||Do not permit cash withdrawal.||Permit cash withdrawals at ATMs/ point of sale/
|Can be issued by non-bank entities||Can be issued by banks or non-bank entities||Can be issued by banks only|
|No approval or authorization required from RBI.||Such establishments have a specific contract with the issuer.|
Whether mere issuance of PPIs are subject to GST ?
Once the classification of PPI is done on the basis of above criteria, next question comes to mind is whether mere issuance of such PPIs are subject to GST ? To answer this question, let’s first understand the working mechanism of the system.
The amount collected by the issuer has to be kept in the escrow account and the issuer is under obligation to use this amount only for making payments to the participating merchant establishments and other permitted payments.
In the above context, taxability under GST is to be analysed considering following :
a) Characteristics of voucher :
Section 12 and section 13 of CGST Act, 2017 also has laid down the time of supply provisions on the basis of same underlying principle.
b) Intrinsic nature of the transaction :
c) Saleability of voucher :
a) Difference between voucher and coupons or gift cards :
b) Saleability of discount coupons or gift cards :
c) Consideration will play vital role :
(Above article was written on 17th July, 2021 & co-authored by CA. Tushar Ajmera and CMA. Anuj Chordiya. Views expressed are strictly personal. For any queries & feedback, reach us at firstname.lastname@example.org)