With tax season looming, one needs to keep in mind while filing income tax returns (ITR) that cashbacks availed via UPI, e-wallets, credit/debit cards or apps may be taxable under certain conditions.
Cashbacks are discounts given against expenses made. These can either be immediate or deferred for after the transaction has been completed. The amount thus received could be eligible for taxation as follows: For example, on a transaction of Rs 499, you receive cashback of Rs 49, which is deposited into the e-wallet or linked bank account. The sum of all such cashbacks in a financial year (for individuals) must not exceed Rs 50,000.
This is so because as per Section 56(2) of the Income Tax Act, an amount exceeding Rs 50,000 for individual taxpayers would be subject to gift tax and declared under ‘income from other sources’ or ‘profits and gains from business or profession’.
The tax is not applicable on freebies in lieu of cashbacks such as free movie tickets, pen drives or earphones unless they were purchased for business or arising from business or one's profession. In this case, even freebies are taxable under section 28(iv) as per their market value.
If one fails to declare such ‘income’ in the ITR, it could lead to reassessment under Section 147 of the Income Tax Act.