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India could spare gift vouchers, offered by companies, particularly in the retail sector, from the levy of Goods and Services Tax (GST), said people with knowledge of the matter. The GST Council, the apex decision-making body for indirect tax, is likely to take up several issues, including the tax on gift vouchers and insurance products, besides increasing the levy on used cars, including electric ones, to 18% from 12% now. It’s also likely to clarify the levy of tax on food delivery apps and flavoured popcorn.
Union Finance Minister Nirmala Sitharaman, who arrived in Jaisalmer on Friday, will chair the 55th meeting of the council on Saturday.
A government official familiar with the deliberations said the law panel under the council had recommended that gift vouchers be covered under the definition of prepaid instruments recognized by the Reserve Bank of India (RBI) that are used as a consideration to settle an obligation. They would thus fall under a category that can’t be taxed under GST.
Retail Sector Had Sought Clarity
In cases where the vouchers are not treated as a consideration, these would be “actionable claims” and still not be treated as a supply of goods or services, according to the law panel.
Tax experts said this will resolve past disputes. Bipin Sapra, partner at EY, said, “The clarification that transactions in vouchers are not liable to GST will put to rest all disputes regarding the nature of vouchers, and confirm that vouchers are mere instruments and not supplies in themselves.”
The retail sector had asked the government for clarity following a ruling by the Karnataka Authority for Advance Rulings in the case of Premier Sales Corp., which held that the vouchers were goods and therefore taxable.Other Key Issues
The council could take a call on reducing tax rates on life and health insurance premiums. A group of ministers (GoM) set up by the council under Bihar Deputy Chief Minister Samrat Chaudhary had suggested exempting insurance premiums paid for term life insurance policies from GST.
Health insurance premiums paid by senior citizens, as well as premiums for coverage up to ₹5 lakh paid by all individuals, could be exempted or face a reduced rate instead of the current 18%.
The council is likely to discuss a hike in the tax rate on old electric vehicles. It could also debate rationalization of the tax rate for about 148 items, including raising the levy on luxury watches, pens, shoes, and apparel.
Discussions could also include a separate 35% tax slab for so-called sin goods and tax cuts on food delivery platforms like Swiggy and Zomato to 5% without input tax credit, from the current 18% with credit, said the official cited. The four-tier GST slabs of 5%, 12%, 18%, and 28% will remain. The 35% levy proposed by the GoM is outside of this.
However, there are wide divergences on these issues among states, a state finance minister told ET. “These issues need deeper discussion… Some states are not keen on many changes,” he said, adding some were even opposing exemption or cut in tax on insurance products.
The council could give the ministerial panel looking into the future of compensation cess more time, until June 2025, to submit its report. The compensation cess, which is levied on goods falling in the 28% tax bracket, comes to an end in March 2026, and a call has to be taken on its future.
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