Are Credit Card Rewards Taxable? Understand the Taxation Implications of Cashback and Rewards

The use of credit cards and various online payment methods like UPI, e-wallets, etc, have become very popular due to the recent popularity of digitisation in India. The Covid-19 pandemic also propelled buyers and sellers to swiftly adopt digital payment methods as a way of no-contact payments. Many of these credit cards and online payment services offer cashback and rewards to users in a bid to attract a growing base of customers. However, many people are confused about whether cashback and rewards would be considered income and would therefore be taxable. The Income Tax department can track and trace all of the transactions related to digital cashback and rewards and there are certain tax implications associated with them. Let’s try and understand these tax implications, as mentioned in the Income Tax Act, 1961.

There are two types of cashback that an individual or organisation can get; instant cashback or deferred cashback. Instant cashback are those that you receive instantly after a transaction. For instance, a ₹10 rupee cashback on mobile recharge. Deferred cashback refers to those in which you receive the benefit later. For instance, if a friend of yours joins any application at your referral, you may get a certain cashback, but only after your friend has successfully registered for the app.

If the cashback is earned by the individual on the purchase of goods and products need for their business or profession, then the total amount paid for these goods and services can be termed as a business expense. The cashback received can then be taxed accordingly as ‘other business income’, as per the Income Tax Act, 1961.

If an individual buys these goods or services for personal use, and the total cashback and rewards in a financial year are below ₹50,000, then no tax would be applicable on the same. However, if the financial value of the cashback and rewards exceeds ₹50,000, then Income Tax would be applicable under the ‘Income from other sources’ category. 

E-wallets such as PayTm or GooglePay have made it extremely easy for individuals to transfer or receive money from their friends. Often times restaurant bills, cinema tickets and other expenses are paid for by one person and the rest of the people transfer money to the individual who paid for these expenses. Receiving money in this manner is considered a gift in terms of taxation. However, these transactions will only be taxable if the total amount received as gifts from friends exceeds a total of ₹50,000. These transactions can be exempt from taxation if they have been sent by your family members and you can furnish proof of the same.

Gift vouchers are also a popular choice when it comes to giving gifts to friends, family and loved ones. However, certain tax implications also exist for gift vouchers. If you receive any gift vouchers from your employer that exceed ₹5,000 in value, they may be subject to taxation. For gift vouchers received from friends and family, they may be subject to taxation under the category of ‘Income from other sources’ if their total value exceeds ₹50,000. However, income received from close family members such as spouses, children, siblings, parents, etc would be exempt from taxation for the recipient.