The Government of West Bengal issued a Trade Circular on January 8, 2025, providing clarification on the Goods and Services Tax (GST) treatment of vouchers, addressing various concerns raised by the trade and industry, and field formations.
The clarification seeks to resolve ambiguities in the treatment of vouchers, such as whether they are considered supplies of goods or services, the GST implications for distributors and agents, and the treatment of unredeemed vouchers (breakage).
1. GST Treatment of Transactions in Vouchers
- Definition of Voucher: A voucher is defined as an instrument that creates an obligation for the supplier to accept it as consideration, either fully or partially, for the supply of goods and/or services. The value stored in a voucher is paid by the holder, typically through cash, debit, or credit card, making it similar to a pre-paid instrument (PPI).
- Transactions Involving Vouchers:
- If the voucher is a pre-paid instrument recognized by the Reserve Bank of India (RBI), it will be considered as money under the GST Act. As money is excluded from the definition of goods and services, transactions involving such vouchers will not be taxable under GST.
- If the voucher is not a pre-paid instrument and is merely an obligation for the supplier to provide goods or services, it is treated as an actionable claim, which is neither a supply of goods nor services under Schedule III of the WBGST Act. Therefore, transactions in vouchers are not taxable under GST.
2. GST Treatment of Voucher Transactions by Distributors/Sub-Distributors
- Principal-to-Principal (P2P) Model: In this model, distributors buy vouchers at a discount and resell them at a higher price to end customers. Since the voucher transaction is not considered a supply of goods or services, the trading of vouchers under this model is not subject to GST.
- Principal-Agent Model: When distributors or agents act on behalf of the issuer and receive a commission or fee for distributing the vouchers, the distributor or agent is providing a service. GST is payable on the commission/fee received for this service, as it constitutes a supply of services.
3. GST Treatment of Additional Services (e.g., Advertisement, Co-Branding, Marketing, etc.)
- If additional services like advertisement, co-branding, or customer support are provided by distributors, sub-distributors, or others to the voucher issuer for a service fee, GST will be applicable on the service fee charged for these services.
4. GST Treatment of Unredeemed Vouchers (Breakage)
- Unredeemed Vouchers: When vouchers are not redeemed (i.e., they expire unused), the amount associated with the unredeemed vouchers is often accounted for as breakage.
- No GST on Breakage: Since breakage involves no redemption of the voucher and no supply of goods or services, there is no underlying transaction. Therefore, the amount retained for unredeemed vouchers (breakage) is not taxable under GST, as it does not meet the criteria for “consideration” under GST provisions.
- Non-Redemption Does Not Constitute a Supply: As clarified in a previous circular (Trade Circular No. 11/2022), non-redemption of vouchers does not result in a taxable supply of goods or services.
5. Summary
- Transactions involving vouchers, whether prepaid instruments or not, do not qualify as supplies of goods or services and are not subject to GST.
- Distributors/sub-distributors acting as agents of the voucher issuer and receiving a commission/fee are providing services, subject to GST on the commission/fee.
- Additional services like advertising or co-branding provided by distributors or other parties to the issuer are subject to GST based on the service fee charged.
- Breakage (unredeemed vouchers) is not subject to GST as it does not involve a taxable supply.
The circular aims to provide uniformity in the application of GST across various field formations, resolving disputes and reducing ambiguities. Businesses dealing in vouchers or providing related services should ensure compliance as per these clarified guidelines
