Taxability of Cashback – In today’s time it has become a general practice anytime that you go shopping online or offline you get to receive some offers where other than offering a price discount, the seller offers a Cashback. Cashback is a new reward shopping trend. Cashbacks are offered by companies to get future sales and attract customers.
Cashback is a reward received in the form of a certain percentage of the sale amount or future redeemable vouches by the buyer/influencer/reseller of the goods or services provider in order to promote the business of the offeror.
Once a Cashback is released by a company, it becomes an income for the recipient which subjects to tax under the Income Tax Regulations. But it is still controversial for many taxpayers to know for what amount will they be tax-held when they receive Cashback. The below guide will help you know the tax treatment of Cashback.
Types of Cashback
Gift or any monetary benefit received without any consideration from any non- relative is taxable. To discuss the taxability of a Cashback in light of the above statement, it is important to know what are the different types of Cashbacks received by a person.
- Instant Cashback where the monetary benefit is given instantly for doing some prompt payment or doing any recharge or on the resale of any product etc. For instance, a Cashback of Rs 50 received when a mobile recharge of Rs 400 is done. The Cashback of Rs 50 can be further used by the recipient for doing some other transaction.
- Deferred Cashback where some Cashback coupon or Cashback code is received which can be used in a later transaction or while doing next purchase or by inviting more members. For example, receipt of coupon code or discount code for purchase of two more t-shirts redeemable on a future purchase.
Taxability of Cashback
- Income Tax Act, Section 56 provides provisions for taxability of gifts received without any consideration. The Section also applies to Cashback benefits received by a taxpayer. Cashback as per Section 56 can be considered as a gift from a non-relative being a monetary benefit received without consideration.
- If a Cashback is received by the taxpayer is in cash and it is below Rs 50,000, then it will be considered as a gift under Section 56 (2) (x), while if it is more than Rs 50,000 it shall be subject to Income tax as per applicable tax slab rate of the taxpayer. Here Rs 50,000 shall be considered as the aggregate value of all Cashbacks and gifts received by the taxpayer in a financial year from one giver.
- For goods/freebies received in the form of Cashback, the gift tax Section 56(2)(x) shall not be applicable.
- If any Capital Asset is purchased and there is a receipt of some Cashback, then depreciation on such asset can be claimed provided that the asset is to be used only for the business purpose or profession and depreciation would be charged only after deducting the value of Cashback from the value of the Capital Asset.
- Cashback received on hotel/flying tickets booked in relation to any business or profession can be claimed as an expense only after deducting the Cashback amount from the total expenditure made on the same.
Disclosure of Cashback in Income Tax
For monetary /instant Cashback received on any transaction the same can be reported by way of deduction of the Cashback amount from the actual amount spent for the expense.
For example, if an instant Cashback of rupees 50 is received on a recharge of Rs 500 then expense for such transaction would be considered as Rs 450.
For deferred Cashback, the amount of Cashback received will be deducted from the actual expense whether made in the current or any future transaction.
For instance, after repair of a vehicle for Rs 500, a coupon Cashback of Rs 200 for future repair is offered, then expense in such condition would be considered as Rs 500 for tax purposes. Later, when the coupon is redeemed against the bill amount of Rs 900, then expense shall be considered Rs 700 in such a case.
FAQ on Taxability of Cashback
Q1. Is there any difference in tax provisions of Discount and Cashback?
A discount offered does not lead to any income to the taxpayer, they are not taxable while Cashbacks in aggregate with gifts more than Rs 50,000 are held as taxable income under Section 56 of the Income Tax Act
Q2. Is Cashback received on Credit/Debit Card offers also taxable?
Yes, Cashbacks received on payments made by Credit/Debit Card are taxable.
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