Clarifying the GST Landscape on Vouchers: Andhra Pradesh Issues Pivotal Circular

[YAGAY andSUN]

Circular No.: REV03-12/35/2025-GST SEC-CCT Date: 08-02-2025

Introduction

In an important move towards ensuring legal clarity and administrative uniformity, the Commercial Taxes Department of Andhra Pradesh, under the leadership of Chief Commissioner Sri Babu A., I.A.S., issued a comprehensive circular on February 8, 2025, addressing multiple GST-related ambiguities surrounding vouchers.

The guidance is crucial given the growing use of vouchers in retail, e-commerce, hospitality, and fintech sectors and the inconsistent interpretations taken by field officers, which has resulted in litigation and compliance issues for businesses.

Key Clarifications Issued

1. Nature of Voucher Transactions: Supply or Not?

The primary question addressed is whether transactions involving vouchers constitute a supply of goods and/or services under GST.

✅ Clarification:

• If the voucher qualifies as a Prepaid Payment Instrument (PPI) regulated by the Reserve Bank of India (RBI), it falls under the definition of "money" under Section 2(75) of the APGST Act. Since "money" is excluded from the definition of goods/services, such vouchers are not taxable under GST.

• If the voucher is not recognized by the RBI as a PPI, it may be treated as an “actionable claim”. Entry 6 of Schedule III of the APGST Act excludes actionable claims (other than specified ones like betting, lottery, etc.) from the definition of supply. Hence, even in this case, transactions in such vouchers would not attract GST.

🔍 Conclusion:

Whether regulated by the RBI or not, vouchers themselves are not treated as a supply of goods or services. However, the underlying goods/services redeemed through vouchers remain taxable.

2. GST on Distribution of Vouchers

Two business models are analyzed for how vouchers are distributed:

Model 1: Principal-to-Principal (P2P) Trading

• Distributors purchase vouchers at a discount and sell them at a margin.

• The transaction is treated as trading, where distributors operate autonomously.

• Clarification: This is not a supply of goods or services and therefore, not taxable under GST.

Model 2: Commission/Agency Basis

• Distributors act as agents on behalf of the issuer and earn commission or service fees.

• Clarification: This is a supply of service, and GST is applicable on the commission/service fee received by the agent.

3. Ancillary Services (e.g., Marketing, Customization, Tech Support)

Where distributors or third parties provide additional services to the voucher issuer (e.g., advertising, co-branding, technical support), the fees received for such services are considered taxable supplies.

• Clarification: These services are independent taxable supplies, and GST is applicable at the applicable rate on such charges.

4. Treatment of Unredeemed Vouchers (Breakage)

A common issue arises when customers fail to redeem vouchers before their expiry.

✅ Clarification:

• Since no supply of goods/services actually takes place, and there's no consideration exchanged, GST is not applicable on breakage amounts.

• There must be an express or implied agreement for a forbearance (i.e., not redeeming a voucher) to be taxable, which is absent in the case of unredeemed vouchers.

Legal & Policy Significance

1. Reduces Litigation: Provides a clear roadmap to businesses and officers, likely reducing ongoing and future disputes.

2. Aligns with National Framework: Echoes broader principles laid down by the GST Council and RBI regulations, creating uniformity.

3. Protects Industry Stakeholders: Especially relevant for fintech firms, loyalty programs, e-commerce platforms, and corporate gifting businesses.

4. Clarifies Taxability Boundaries: Differentiates between the voucher as a mode of payment vs. underlying supply, helping businesses plan tax compliance effectively.

Final Word

The Andhra Pradesh Commercial Taxes Department has taken a progressive and business-friendly step in addressing the long-standing confusions related to vouchers under GST. The circular recognizes the evolving nature of digital transactions and seeks to minimize regulatory friction by clarifying the legal treatment of voucher issuance, trading, and redemption.

This move is expected to streamline compliance, reduce disputes, and encourage consistency across GST administrations in India.

For businesses and professionals dealing in vouchers, this circular is a must-read and should serve as the basis for reviewing current tax practices.