GST on Gift Vouchers: Budget 2025 proposes to Remove Obsolete Provisions
The taxability of Gift Vouchers was always a disputed point of contention for tax authorities and taxpayers alike. This Circular provides much needed clarity on the same
The Union Budget 2025-26 was presented on 1 February, 2025 with a keynote address by Union Finance Minister Nirmala Sitharaman. By means of the proposed Finance Bill, 2025, the Government seeks to eliminate outdated provisions concerning the taxability of gift vouchers. The move is based on the recommendations of the 55th Goods and Services Tax ( GST ) Council Meeting which took place on...
The Union Budget 2025-26 was presented on 1 February, 2025 with a keynote address by Union Finance Minister Nirmala Sitharaman. By means of the proposed Finance Bill, 2025, the Government seeks to eliminate outdated provisions concerning the taxability of gift vouchers.
The move is based on the recommendations of the 55th Goods and Services Tax ( GST ) Council Meeting which took place on 21st December 2024 in Jaisalmer, Rajasthan.
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Additionally, the move is further effectuated by the contents of Circular No. 243/37/2024-GST dated 31.12.2024, issued by the Central Board of Indirect Taxes and Customs. One of the key takeaways from the last GST Council Meeting was the recommendation to remove GST on the transaction of vouchers, since they constitute neither supply of goods nor supply of services.
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The GST Council had proposed omitting Sections 12(4) and 13(4) of the Central Goods and Services Tax (CGST) Act, 2017, along with Rule 32(6) of the CGST Rules, 2017 which had caused extensive ambiguities in the tax treatment of vouchers, calling for judicial intervention in many circumstances.
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Despite the removal of GST on vouchers themselves, certain allied services related to voucher distribution will still be taxed. Transactions in vouchers distributed on a principal-to-principal basis will not be subject to GST; however, if distributed on a principal-to-agent basis, the commission or fee charged by the agent will attract GST.
In addition, marketing, co-branding, promotion, customization, and other support services linked to vouchers will continue to be taxable under the GST regime.
Furthermore, the GST Council also recommended that ‘unredeemed vouchers’, often referred to as ‘breakage’ would not be considered as supply under the GST regime, and hence no GST shall be payable on income booked in the accounts in respect of breakage.
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Prepaid vouchers, including gift cards and digital wallets regulated by the Reserve Bank of India ( RBI ), will be treated as money and thus remain outside the purview of GST. Contrastingly, non-prepaid vouchers that entitle holders to claim specific goods or services, are categorized as actionable claims and will not be taxed, except in matters involving gambling or betting.
The changes have brought about consequential changes to the treatment of Vouchers under the law, and would require businesses and individuals to rethink their strategies in the issuance and usage of vouchers for business purposes.
To Read the full text of the Order CLICK HERE
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