Cashbacks can be taxable | Fusion - WeRIndia

Online shopping is gaining wide popularity in India due to increased digitalization and rapid of growth of e-commerce sector.

In this context, several ecommerce platforms provide cashback to their customers.

Generally, cashbacks are offered in two ways: Instant cashbacks which can be available immediately after you buy a product or get a service.

For instance, if you ride a car and the fare is ₹400 for which there is an instant cashback offer of ₹100, then you have to pay ₹300 at the end of your trip.

On the other hand, cashback referral or deferred cashback is another type of cashback offer.

Under this cashback offer, cashbacks are applicable on the next transaction. In this situation, you can use your cashback offer you get through online app for referring your friend and it can be used on your next transaction.

But, here the question is whether or not if the cashbacks are taxable. Though, negligible amounts may be ignored, but cashbacks of significant amounts are taxable in certain situations.

Instant discounts are not taxable in the hands of individual taxpayers. This is because, customers are paying the net amount after deducting the discount i.e. the specific price by the vendor.

If the customer is buying the goods for his business or profession, then they have to show the net price amount as business expense and even depreciation is only allowed on it.

They cannot show the actual amount i.e. the price before the discount as they are not buying for the actual price but for the discounted price. That means, here the actual price is the discounted price for which they are buying but not the price which is quoted on the website.

For deferred cashbacks of substantial amounts, you have to be more cautious.

Section 56(2)(x) of the Income-tax Act says that any amount that exceeds ₹50,000 (received from a non-relative by way of a gift) is taxable in the hands of individual taxpayers under income from other sources or profits or gains from business or profession whichever is applicable.

For example, if you a receive a gift of ₹45,000 from one of your friend on the occasion of your birthday or marriage day and at the same time, you received ₹10,000 as cashback on the purchase of TV or camera or some other product, then, the total amount is ₹55,000 (₹45,000 plus ₹10,000) which is taxable in your hands.

However, rewards of frequent flyer miles are not taxable as they are instant discounts and won’t be added to your bank account.

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