Clarification on GST Treatment of Vouchers

Clarification on GST Treatment of Vouchers

Clarification on GST Treatment of Vouchers On December 31, 2024, the GST Policy Wing of the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 243/37/2024-GST to address various issues related to the Goods and Services Tax (GST) treatment of vouchers. Clarification on GST Treatment of VouchersT his circular provides much-needed clarity for businesses, distributors, and field officers who have faced ambiguity in interpreting the provisions of the Central Goods and Services Tax Act, 2017 (CGST Act).

Key Issues Addressed

The circular addresses the following key concerns:

1. Whether transactions involving vouchers are categorized as a supply of goods or services.
2. GST applicability on the trading of vouchers by distributors or sub-distributors. Clarification on GST Treatment of Vouchers
3. GST treatment of additional services related to vouchers, such as marketing and co-branding.
4. Taxability of unredeemed vouchers (commonly referred to as “breakage”).

Definition of Vouchers and Related Terms

To understand the GST treatment of vouchers, the circular references the following key definitions:

1. Voucher (Section 2(118)): An instrument creating an obligation to accept it as consideration or part consideration for goods or services.
2. Goods (Section 2(52)): Movable property excluding money and securities.
3. Services (Section 2(102)): Activities excluding goods, money, and securities, but including facilitating transactions in securities.
4. Money (Section 2(75)): Indian legal tender or other instruments recognized by the Reserve Bank of India (RBI), excluding currency held for numismatic value.
5. Actionable Claim (Section 2(1)): Claims to a debt or beneficial interest in movable property not in possession of the claimant.

GST Applicability on Vouchers

Issue 1: Are transactions in vouchers treated as a supply of goods or services?

• Case 1: Vouchers as pre-paid instruments regulated by RBI
  • Vouchers used as a payment instrument fall under the definition of “money” as per Section 2(75) of the CGST Act.
  • As “money” is excluded from the definitions of goods and services, transactions in such vouchers are neither considered a supply of goods nor services and are not taxable under GST.
• Case 2: Vouchers not recognized as pre-paid instruments
  • These vouchers create an obligation to accept them for specific goods or services. Clarification on GST Treatment of Vouchers They fall under the category of “actionable claims.”
  • As per Entry 6 of Schedule III, actionable claims (other than specified actionable claims such as betting or gambling) are treated as neither a supply of goods nor services. Consequently, such transactions are also not subject to GST.

Issue 2: GST Treatment of Voucher Transactions by Distributors/Sub-Distributors

Two primary distribution models were examined:

1. Principal-to-Principal (P2P) Model:
   • Distributors purchase vouchers from issuers at a discounted rate and sell them to sub-distributors or end customers.
   • Since these transactions are not considered a supply of goods or services, GST is not applicable on the trading of vouchers.
2. Agency Model:
   • Distributors or agents act on behalf of voucher issuers and earn a commission or fee for their services.
   • GST is applicable on the commission or fee received by the agent as it is categorized as a supply of services.

Issue 3: GST Treatment of Additional Services

Additional services provided by distributors or other parties to voucher issuers, such as:

• Advertisement and marketing
• Co-branding
• Customization
• Technology or customer support

The service fee or charges for these activities are subject to GST at the applicable rates. These services are independent of the voucher’s supply and constitute taxable supplies of services.

Issue 4: GST Treatment of Unredeemed Vouchers (Breakage)

When vouchers remain unredeemed at the end of their validity period:

• The value of unredeemed vouchers, accounted for as income by businesses, does not involve the supply of goods or services. Clarification on GST Treatment of Vouchers
• As there is no underlying supply, the retained amount (breakage) is not considered consideration for any supply and is not taxable under GST.

https://www.gst.gov.in/

Practical Implications for Businesses

1. Uniform Interpretation: This clarification ensures consistent treatment of vouchers across different jurisdictions, reducing ambiguity and litigation.
2. Simplified Compliance: Businesses can align their accounting and GST practices with the guidelines provided, ensuring better compliance.
3. Clear Taxability of Services: Businesses providing additional services like marketing or co-branding must account for GST on service charges.
4. Breakage Accounting: Companies can exclude unredeemed voucher amounts from their GST liability, easing financial burdens.

Conclusion

The clarifications provided in Circular No. 243/37/2024-GST offer much-needed relief to businesses and field officers dealing with voucher-related transactions. By addressing issues such as the categorization of vouchers, taxability of distribution models, and the treatment of breakage, the circular reduces ambiguity and ensures uniform implementation of GST provisions.

For businesses involved in the issuance, distribution, or trading of vouchers, it is crucial to review contractual agreements and accounting practices to align with these clarifications. This will help in maintaining compliance and avoiding potential disputes with tax authorities.

For more updates on GST and compliance-related matters, stay tuned to our blog.

For More Information : https://taxgyany.com/