Vouchers are increasingly used for gifting, promotions, employee rewards and customer loyalty. GST has specific rules for determining when vouchers are taxable and the time of supply.
What Is a Voucher?
Under GST, a voucher is an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services, and where the goods or services or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation.
Vouchers can be physical or digital, and include gift cards, prepaid cards, meal vouchers, travel vouchers and cashback vouchers.
Identifiable vs Non-Identifiable Vouchers
Identifiable Voucher
A voucher is identifiable if the goods or services and the supplier are known at the time of issue of the voucher. For example, a voucher issued by a retailer for its own store where the goods are specified.
Non-Identifiable Voucher
A voucher is non-identifiable if the goods or services or the suppliers are not known at the time of issue. For example, a multi-brand gift card that can be redeemed at various stores or for various products.
Taxability of Vouchers
Sale of Voucher
Under Section 7, the sale of a voucher itself is generally not a supply of goods or services; it is a supply of an actionable claim, which is excluded from GST under Schedule III, except for lottery, betting and gambling. Therefore, the sale of a voucher is not subject to GST at the time of sale, unless the voucher itself is for a specific supply and is treated as advance.
However, the supply of goods or services for which the voucher is redeemed is taxable.
Redemption of Voucher
When a customer redeems a voucher for goods or services, the actual supply of goods or services takes place. GST is payable on that supply at the time of redemption, based on the normal time of supply rules for the underlying goods or services.
Time of Supply for Vouchers
For Goods
Section 12(4) provides that for a supply of goods by way of a voucher, the time of supply is:
- If the voucher is identifiable: the date of issue of voucher.
- If the voucher is non-identifiable: the date of redemption of voucher.
For Services
Section 13(4) provides similarly:
- Identifiable voucher: date of issue.
- Non-identifiable voucher: date of redemption.
Explanation
Identifiable Voucher
If the voucher identifies the specific goods or services and the supplier, the issue of voucher is treated as the time of supply. Effectively, the voucher is treated as an advance for a known supply. GST becomes payable at the time of issue, even if the voucher is redeemed later.
Non-Identifiable Voucher
If the voucher does not identify the specific supply or supplier, the time of supply is the redemption date. GST is not payable at issue; it is payable only when the voucher is actually used for a supply.
Practical Examples
Example 1: Retailer Gift Card for Own Store
A retail store issues a gift card redeemable for any product in its store. This is an identifiable voucher because the supplier is known, though the exact goods may not be specified. The time of supply is the date of issue of the gift card? The definition of identifiable voucher requires goods or services and the supplier to be indicated. If the store's products are known but the specific goods are not, some may argue it is non-identifiable. The distinction is whether the goods or services are indicated. A generic gift card for a store may be non-identifiable because the goods are not indicated. In practice, many treat store-specific gift cards as non-identifiable and tax on redemption. The law's wording is narrow. Advance Rulings have varied.
Example 2: Meal Voucher for Specific Restaurant
A meal voucher issued for a specific restaurant chain, redeemable for food. If the restaurant and service (food) are identified, it is identifiable. Time of supply is issue date.
Example 3: Multi-Brand Gift Card
A gift card usable at multiple retail brands with no specific goods identified is non-identifiable. Time of supply is redemption date.
Practical Compliance
- Determine whether the voucher is identifiable or non-identifiable.
- If identifiable, account for GST at issue date.
- If non-identifiable, account for GST at redemption date.
- Maintain records of voucher issuance, redemption and breakage.
- For unutilised vouchers (breakage), GST may not be payable unless the voucher is considered as supply at expiry.
How Anuj Desai & Associates Can Help
We help issuers and distributors of vouchers determine taxability, manage time of supply, and comply with GST on voucher programs.
Contact Anuj Desai & Associates
Email: office@anujdesaiassociates.com
Phone: 9619456656
Website: https://anujdesaiassociates.com
LinkedIn: linkedin.com/in/ca-anuj-desai-122547230