Mobile wallets and e-payment apps have made our lives so much easier! You can now pay your mobile bills, electricity bills and even restaurant bills with just a few taps on your smartphone. Most mobile wallets, UPI payments and apps offer heavy cashback and similar discount offers against the purchases you make or the expenses that you incur. The ‘cashback’ works in such a manner that once you have transacted, you receive a portion of the transaction amount or a fixed amount back into your wallet balance.
But were you aware that such tempting cashback offers, schemes and discounts can also attract taxes in specific situations? Let us discuss this in detail:
If you receive any kind of monetary benefit in the form of either gifts or cashback, these are counted under either the head, ‘Income from Other Sources’ or 'Profits and Gains from Business or Profession'.
Here’s what it means: when you receive some money without any commensurate consideration (i.e. without receiving anything in return) and if the total value of such a sum exceeds ₹50,000 in a year, it is subject to the tax called gift tax.
This is in accordance with the provisions of Section 56(2)(x) of the Income Tax Act. As such, monetary benefits received in the form of cashback offers in your mobile wallet or credit card or even a direct credit to your bank account are counted towards this sum.
A closer look at these cashback offers:
As the name suggests, sometimes the amount paid for a purchase or service is discounted, i.e. instantly deducted from the price of the product/service in question. As long as the purchase or payment is intended for personal use, such discounts are not taxable. Thus, income tax does not come into the picture.
Deferred cash backs
Cashback offers are where you pay the full price for a product or service but the mobile wallet later credits some predetermined amount or proportion to your wallet balance.
The cashback offers redeemed for personal consumption are subject to a declaration as ‘Income from other sources’ in case the total amount of such cashback is more than ₹50,000 in a financial year.
Another instance to be considered is where the amount of cashback you receive is less than ₹50,000 but in addition to the cashback offers, you have also received monetary gifts from people other than your relatives, that is from non-relatives or friends etc. In this case, you will need to find the aggregate monetary value of these gifts and see if this amount exceeds ₹50,000.
Cashback offers are very tempting to redeem but make sure you keep track of the amounts being credited to avoid a massive tax burden.