If a customer returns an item, you can put the refund amount on an already activated gift card (like a store credit). You won't be able to do this on a newly issued gift card.

Add the item being returned to the ticket/sale.
Change the item to a return.
Tap Checkout.
Choose Gift Card as the payment type.
Tap Done.
Swipe the gift card.
When the transaction completes, the printed receipt will show the gift card balance. Please note that this could result in a negative sales amount for gift cards in the Back Office reports where the amount by payment type is shown.