The cashback on your shopping could be taxable

6pack

ex-Mod
Source: Economic Times: The cashback on your shopping could be taxable


Various online shopping websites, credit card companies, and e-wallet companies offer lucrative cash back schemes. These cash backs are awarded either by way of 'Instant Discounts' or by way of 'Cash Backs'. Do you know that these cash backs may invite taxes in certain situations? Income and taxes are the flipsides of the same coin. Any monetary benefit received by a person by way of gifts or cash backs from a non-relative might be subject to income-tax under the head 'Income from Other Sources' or 'Profits and Gains from Business or Profession', as the case may be.

Before we evaluate the taxability of such benefit schemes, it would be imperative to first take cognizance of the provision of Section 56(2)(x) of the Income-tax Act. This provision provides for levy of tax if any sum of money is received without consideration. This tax, popularly known as 'gift tax', is levied only if the aggregate value of such sum exceeds Rs 50,000 during the financial year. If the benefits are not given in the form of cashbacks but in form of accessories (i.e., free earphones, power banks, etc.), this provision shall not be applicable. However, market value of freebies can be taxable if goods are purchased for the purpose of business or profession as all benefits, arising in the course of business or profession, are taxable under section 28(iv) whether they are convertible into money or not.

In other words, the provision of gift tax can be invoked only if any monetary benefit is received by way of credit in the bank account, e-wallets or credit card. In case of gifts received in kind, no amount is credited to the user's account, hence the provision of gift tax shall not be applicable.

Instant discounts
In instant discount schemes, if the customer opts to pay for the order using the prescribed debit card or credit card, an extra discount is offered by the website which is instantly subtracted from the listed price and customer pays the net discounted amount only. If the customer is buying the goods for his business or profession, the net price shall be allowable as business expense or if it is a capital asset (i.e., laptop, ACs, TVs, etc.) then the depreciation will be allowed on the net amount only.

However, if goods are purchased for personal consumption and not for any business or profession, then nothing shall be chargeable to tax as no monetary benefits are received by way of credit to the account of the customer.

Deferred cash backs
In 'Cashback' schemes, if customer chooses to pay with the credit card or debit card of partner bank, the bank credits the predetermined cashback in card user's account at the end of a pre-determined 'cooling' period. If an individual receives cashback in relation to purchase of any goods, not being a capital asset, for the purpose of business or profession carried on by him, then the buyer can either claim the deduction only for the net expenditure after reducing the amount of cashback from total expenditure or to add the cash back to 'other business receipts' and declare in income tax return as part of gross income.

If cash back is received in respect of purchase of a capital asset to be used for the purpose of business or profession carried on by him, then he can claim depreciation on the net amount after reducing the total value by the amount of cashback or he can claim depreciation on gross amount and pay tax on the cashbacks as other business receipts.

If cashback is received for the goods purchased for personal consumption, then the same shall be taxable under the head "Income from other sources" only if the total amount of cash back exceeds Rs 50,000 during a financial year. Further, where the amount of cash back is less than Rs 50,000 but in addition to this cash back the buyer has also received some monetary gifts from non-relatives or friends and the aggregate of such gift and the cashback exceeds Rs 50,000, then he shall be liable to pay taxes on such aggregate value.

For example, Mr. A bought a camera for Rs 50,000, on which he received a cashback of Rs 10,000. Additionally, he received a gift of Rs 45,000 from one of his friends. Even though the amount of cash back is less than Rs 50,000, yet, the aggregate of cashback and gift exceeds Rs 50,000. The entire receipt of Rs 55,000 shall be taxable in the hands of the Mr. A under the head "Income from other sources".

Frequent flyer miles
Frequent flyer miles are the rewards which can be redeemed while booking tickets for a flight. So these are just like instant discounts. As in the case of instant discounts, no taxability will arise on frequent flyer miles whether they are linked with the business or profession or not. These rewards can also be availed by way of instant reduction from the billed amount, in which case no taxability shall arise. In both the cases if these rewards are linked with the business or profession carried on by the assessee, he can claim only net expenditure as business expense.
 
If cashback is received for the goods purchased for personal consumption, then the same shall be taxable under the head "Income from other sources" only if the total amount of cash back exceeds Rs 50,000 during a financial year.

Only If you get that much back
 
Only If you get that much back

For example, Mr. A bought a camera for Rs 50,000, on which he received a cashback of Rs 10,000. Additionally, he received a gift of Rs 45,000 from one of his friends. Even though the amount of cash back is less than Rs 50,000, yet, the aggregate of cashback and gift exceeds Rs 50,000. The entire receipt of Rs 55,000 shall be taxable in the hands of the Mr. A under the head "Income from other sources".
 
why are they combining cashbacks and gifts tho?
And saying gift can only be from a family member...

The point is govt are cash strapped. Shortfall in taxes. They want to go after RBI because RBI manages the country's reserves. A huge pot of gold. I hope they will not get their hands on that.

The Argentine govt did that with their central bank and trouble began soon after.
 
wait, gifts from other non family people also comes under this and taxed right?

yes. If you got an iphone X as gift or won it you will end up paying tax on its total cost since it costs more than 50k.

This looks like double taxation to me. We are spending already taxed money to buy things and getting it back as a discount and they are charging tax on the discount terming it as extra income. Finance Ministry and IT is the biggest thief in India.
 
Jaitley in particular doesn't like people getting any freebies. So, they have made several changes to impose taxes and to discourage such freebies. If your bank offers some services free of cost for premium account holders. They are taxable to the bank even if no revenue is being generated. If you get a free item along with a product or extra quantity of the same product, it is taxable even if the manufacturer is not getting extra revenue.

If your company reimburses your internet or telephone bill (amount you paid along with GST going to govt), it used to be exempt, but now they are making all such reimbursements taxable. For e-com too, they want to tax all revenue spent on enabling discounts even if no profits were made and company is loosing money.
 
yes. If you got an iphone X as gift or won it you will end up paying tax on its total cost since it costs more than 50k.
There is a difference between gift & winnings for tax purposes depending on the country. Are you saying gifts & wins are treated the same ?

Was chatting with a friend in the UK and people bet on the races there for the simple reason that winnings are tax free

Gift is only a problem if the other party declares it. Otherwise how will the govt know :)
 
Jaitley in particular doesn't like people getting any freebies. So, they have made several changes to impose taxes and to discourage such freebies. If your bank offers some services free of cost for premium account holders. They are taxable to the bank even if no revenue is being generated. If you get a free item along with a product or extra quantity of the same product, it is taxable even if the manufacturer is not getting extra revenue.

If your company reimburses your internet or telephone bill (amount you paid along with GST going to govt), it used to be exempt, but now they are making all such reimbursements taxable. For e-com too, they want to tax all revenue spent on enabling discounts even if no profits were made and company is loosing money.
Jaitley is a c*nt.
 
There is a difference between gift & winnings for tax purposes depending on the country. Are you saying gifts & wins are treated the same ?

Was chatting with a friend in the UK and people bet on the races there for the simple reason that winnings are tax free

Gift is only a problem if the other party declares it. Otherwise how will the govt know :)

Gifts and wins come under the same category according to the first post. That was my understanding of how taxation works here.

There are ways around if someone wants to convert black money. If your relative bought an iPhone with black money and gifted it to you and you did not declare it, yes, no one will know about it. The only one declaring it as sales and paying any taxes on it would be the shop if they are inside India.

Wins have a disclaimer in them if you read the T&C properly. There is always a line in there somewhere that any or all taxes will be borne by the winner and not the company giving out the gift.

Edit: Even I'm wrong I think.
https://www.hrblock.in/guides/gift-tax-india/

On Amazon I didn't see anything about tax. Only that a pan card was mandatory above winnings above 10000. So indirectly its possible that they will give your details to the IT dept saying you won the gift in some promotion.
Amazon link

PRIZE DRAWING:

The drawing for selection of the winners of the Contest will be aggregated at the end of the Contest Period. We will notify the selected participants by e-mail following the draw, and they will be required to share a valid proof of identity and age in the form of a copy of PAN Card / Driving License / Voter ID / Indian passport. A PAN card copy is mandatory for prizes worth INR 10,000 or more. The selected participants will automatically forfeit their claim to the Prize if they do not meet the eligibility criteria or do not comply with these T&Cs.
 
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There is a difference between gift & winnings for tax purposes depending on the country. Are you saying gifts & wins are treated the same ?

Was chatting with a friend in the UK and people bet on the races there for the simple reason that winnings are tax free

Gift is only a problem if the other party declares it. Otherwise how will the govt know :)
no. I think gifts come under income from other sources and are taxed according to your slab. however lottery winnings are taxed at flat 30% iirc (dont quote me on that, many years since I opened commerce books)
 
There are ways around if someone wants to convert black money. If your relative bought an iPhone with black money and gifted it to you and you did not declare it, yes, no one will know about it.
A spouse giving partner a phone is very common. Neither is going to declare it. Even with no black money involved.

The only one declaring it as sales and paying any taxes on it would be the shop if they are inside India.

Wins have a disclaimer in them if you read the T&C properly. There is always a line in there somewhere that any or all taxes will be borne by the winner and not the company giving out the gift.

Edit: Even I'm wrong I think.
https://www.hrblock.in/guides/gift-tax-india/

On Amazon I didn't see anything about tax. Only that a pan card was mandatory above winnings above 10000. So indirectly its possible that they will give your details to the IT dept saying you won the gift in some promotion.
Amazon link
If they take your pan card then they are declaring it.[DOUBLEPOST=1541875535][/DOUBLEPOST]
no. I think gifts come under income from other sources and are taxed according to your slab. however lottery winnings are taxed at flat 30% iirc (dont quote me on that, many years since I opened commerce books)
ok so there is a distinction but both come under tax under different slabs
 
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