GST Treatment of Vouchers: Circular No. 243/37/2024

On December 31, 2024, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 243/37/2024-GST to address several ambiguities surrounding the GST treatment of vouchers. The circular aims to ensure uniform implementation across field formations and resolve issues related to the categorization and taxation of vouchers. Below is a detailed breakdown of the clarifications provided:

1. Definition and Nature of Vouchers Under GST

Relevant Provisions of the CGST Act:

• Section 2(118): Defines a voucher as an instrument that obligates the supplier to accept it as consideration (or part consideration) for goods or services, with the identities of the goods, services, or suppliers indicated either on the voucher or in related documentation.
• Section 2(52) & Section 2(102): Exclude “money” from the definitions of goods and services, respectively.
• Section 2(75): Defines “money” to include instruments recognized by the RBI used to settle obligations but excludes vouchers.
• Schedule III: Treats actionable claims, except specified actionable claims (e.g., betting, gambling), as neither a supply of goods nor services.

Clarification on Voucher Categorization:

1. If a voucher is a prepaid instrument recognized by the RBI and used as consideration, it qualifies as “money” and is neither goods nor services.
2. If not recognized as “money,” the voucher acts as an actionable claim, which is also treated as neither goods nor services under Schedule III.

Conclusion: The transaction in vouchers itself does not constitute a supply of goods or services. However, the supply of underlying goods or services for which the voucher is redeemed is taxable.

2. GST Treatment of Vouchers Distributed by Distributors, Sub-Distributors, or Agents

Two Distribution Models:

1. Principal-to-Principal (P2P) Basis:
   • Distributors purchase vouchers from issuers at a discount and sell them to sub-distributors or end customers at a margin.
   • Such trading is not a supply of goods or services and is not liable to GST.
2. Commission/Fee Basis:
   • Distributors act as agents for voucher issuers and earn a commission for marketing, promotion, and distribution services.
   • The commission or fee earned is considered a supply of services and is taxable under GST.

3. GST on Additional Services Related to Vouchers

Services such as advertisement, co-branding, technology support, and customer assistance provided to voucher issuers are taxable as per the applicable GST rates. The liability lies with the service provider offering these services.

4. GST Treatment of Unredeemed Vouchers (Breakage)

Clarification on Breakage:

1. If a voucher remains unredeemed upon expiry, the amount accounted as income (breakage) is not subject to GST.
2. There is no supply of goods or services associated with unredeemed vouchers, and the amount retained cannot be treated as consideration.
3. Circular No. 178/10/2022-GST emphasizes that taxable supplies require an agreement for an act or forbearance. Since no agreement exists in the case of unredeemed vouchers, GST is not applicable.

Implications for Businesses

1. Voucher Issuers: Must clearly distinguish between transactions involving vouchers as instruments versus the taxable supply of underlying goods or services.
2. Distributors and Sub-Distributors: Should identify the nature of their transactions (P2P or commission basis) to determine GST applicability.
3. Service Providers: Additional services related to vouchers, such as marketing or co-branding, are taxable and require compliance.
4. Accounting for Breakage: Businesses should account for unredeemed vouchers appropriately, knowing they are not liable for GST on these amounts.

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