Yes. The amount paid by Gift Card will be issued into your ICONIC account as store credit and the remaining paid amount refunded as per the original method (by credit card or PayPal).
E.g. You purchased an item priced at $65 using a $50 Gift Card and paid the remaining $15 using your credit card. You decided to return the item for a refund. The refund you will receive is $50 issued as a store credit and $15 refunded back to your credit card.
You can view your store credit under the Your Credit section.