Use of Prepaid Card at POS machines

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Ajay Gupta (Querist)
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30 November 2019 Let's my company has policy to give Prepaid Card of Rs. 10,000 each to top 1000 employees of the month. So we purchased 3,000 prepaid cards from any merchant (let's say HDFC PayZapp Card) at a discount of 1%. This card comes with non-returnable clause, which means we can't return to merchant.

Due to some internal reason, our company's policy revoked and we stopped giving these Prepaid Cards to employees. At this point, company had a stock of 2,000 cards.

Since, we are not eligible to return these to merchant; there is thought to swipe all these cards on company's POS machines...

Query #1 - Is this legally valid?
Query #2 - Will this swiping of prepaid gift card into company's own POS machine attract GST?

Thanks in Advance

CA PARTH SHAH

CA PARTH SHAH (Expert)
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02 December 2019 Query -1:- Where is the question of Legality in this case???
Query -2:- Please explain How will you use the cards in more elaborate manner.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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02 August 2025 Great question! Here’s a detailed take on your queries regarding **use of prepaid cards at company’s own POS**:

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### Query 1: Is it legally valid to swipe prepaid cards on company’s own POS machines?

* **Prepaid cards** like HDFC PayZapp are usually issued as a **payment instrument** meant to be used for purchasing goods or services from merchants.
* Using prepaid cards to purchase from your own company’s POS can be **viewed as a related-party transaction or circular flow of funds**.
* **Legality depends on the terms and conditions of the prepaid card** issued by the bank/merchant. If the card terms do not restrict usage at your company’s POS, technically it can be done.
* However, tax authorities or regulators may view this as **non-genuine or artificial transaction** if no real goods or services change hands.
* From an accounting perspective, this may raise **questions on revenue recognition** and could be considered an attempt to artificially inflate sales.
* So, **legally it's a grey area** and best avoided unless it’s clearly compliant with card issuer policies and tax laws.

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### Query 2: Will this swiping attract GST?

* **GST applies on supply of goods or services.**
* If the company swipes prepaid cards on its own POS, **no actual supply of goods or services to third party occurs**, so technically **no GST liability should arise**.
* However, if you treat the swiping as a **sale to your own company (related party)**, tax authorities may challenge the transaction as a **“supply” with no consideration or a bogus transaction** to evade taxes.
* The **input tax credit (ITC)** and GST liability implications will depend on how the transaction is structured and documented.
* If goods or services are not actually supplied, GST authorities may disallow any input credits and levy penalties for bogus transactions.

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### Summary / Recommendations:

* **Avoid swiping prepaid cards on your own POS** as it may invite scrutiny from tax and regulatory authorities.
* Check **terms and conditions of the prepaid cards** for usage restrictions.
* If prepaid cards are unused, consider other legitimate ways such as:

* Giving them as gifts to employees if policy permits (and account for taxable perquisites).
* Selling them at discount to outsiders (if allowed).
* Consult your **tax/legal advisor** before proceeding with such transactions.

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If you want, I can help draft a formal note or policy advisory on this matter. Would you like that?

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