You’re swiping like a boss. Amex is rewarding; Infinia and EPM are raining points. Tata Neu is doing… something!
This one’s for all the card enthusiasts here on TF who’ve asked: “Do I need to pay income tax on cashback or reward points?”
Let’s break it down the right way — with the Income Tax Act, some real case laws, and a pinch of no-nonsense clarity.
Disclaimer: I think I am right - but I may be wrong 🙂
First up: What’s Income?
As per Section 2(24) of the Income Tax Act, 1961, income includes: “…the value of any benefit or perquisite arising from business/profession, or any other receipts unless specifically exempt.”
Also, under Section 56(1): “Any receipt which is not excluded specifically shall be taxed under ‘Income from Other Sources’.”
Translation for us: If it looks like income, smells like income, and isn’t exempt — it probably is income!
Cashback or Reward Points on Your Own Spending (Personal Use):
Example: ₹1,00,000 spent → ₹3,000 cashback via Supermoney pro upi or rewards on HDFC Infinia, SBI Air India, or ICICI Emeralde.
Cashback Earned on Business Expenses (When You Also Claim the Full Expense)
Referral Income or Sign-up Bonuses (No Spend Required)
Reward Points or Vouchers (Used for Personal Redemption)
So until the day the Income Tax Department starts asking “kitne points mile?”, relax. Swipe smart, earn rewards, and remember — if your card gives you joy but not cash, the taxman’s not interested. Yet. 😎
This one’s for all the card enthusiasts here on TF who’ve asked: “Do I need to pay income tax on cashback or reward points?”
Let’s break it down the right way — with the Income Tax Act, some real case laws, and a pinch of no-nonsense clarity.
Disclaimer: I think I am right - but I may be wrong 🙂
First up: What’s Income?
As per Section 2(24) of the Income Tax Act, 1961, income includes: “…the value of any benefit or perquisite arising from business/profession, or any other receipts unless specifically exempt.”
Also, under Section 56(1): “Any receipt which is not excluded specifically shall be taxed under ‘Income from Other Sources’.”
Translation for us: If it looks like income, smells like income, and isn’t exempt — it probably is income!
Cashback or Reward Points on Your Own Spending (Personal Use):
Example: ₹1,00,000 spent → ₹3,000 cashback via Supermoney pro upi or rewards on HDFC Infinia, SBI Air India, or ICICI Emeralde.
- Taxability? Not Taxable
- Why? Cashback / reward is a purchase-linked rebate, just like getting 5% off at checkout. It’s not separate income
- Supported by logic in case laws like: CIT v. P.K. Kalyanasundaram (2007) 294 ITR 49 (SC): Rebates and discounts reduce your cost — they’re not earnings.
Cashback Earned on Business Expenses (When You Also Claim the Full Expense)
- Example: Business travel worth ₹1,00,000 paid using personal credit card, and cashback of ₹3,000 is pocketed, but full ₹1L is claimed as a business deduction.
- Taxability? Yes
- Why? You’re double-dipping: deducting ₹1L AND keeping the cashback. The ₹3K becomes a benefit from business, taxable under:
- Section 28(iv) (business benefit/perquisite)
- Section 2(24)(iva) (included in income)
- Case Law: Ravi Kumar v. DCIT (2011) – cashback/benefits from suppliers were taxed since full expense was claimed
- So, Ideally: Reduce expense claimed by cashback
Referral Income or Sign-up Bonuses (No Spend Required)
- Example: Refer a friend → ₹1,000 credited to your account.
- Sign-up bonus of ₹2,000 for getting the card — no spending involved.
- Taxability? Definitely Taxable
- Why? This is not linked to any purchase, so it’s income in your hands.
- Falls under: Section 56(1) – “Income from Other Sources”
Reward Points or Vouchers (Used for Personal Redemption)
- Redeemed points for Amazon vouchers, hotel stays, or flights.
- Taxability? Not Taxable
- Why?
- They are non-cash, conditional benefits with no fixed or ascertainable monetary value at the time of receipt
- Considered non-cash value rebates. No direct monetary gain unless converted to hard cash (and even then, usually exempt if spend-linked).
- CBDT Notification (June 30, 2022) - Clarification on VDAs
- CBDT issued Notifications No. 74 & 75/2022, excluding:
- Gift cards or vouchers
- Mileage points, reward points, loyalty cards
- Subscription credit
- These are not classified as Virtual Digital Assets (VDAs)
- Implication: GOV sees reward points/vouchers as non-cash benefits, not assets to be valued or taxed under VDA rules — bolstering the case that they’re not taxable income either.
- CBDT issued Notifications No. 74 & 75/2022, excluding:
- No Determinable Fair Market Value:
- Sec 2(24) ITA includes only those benefits/perquisites with quantifiable value
- But credit card rewards are:
- Received in non-cash form
- Have variable redemption value (e.g., 1 mile ≈ ₹0.25–₹0.75)
- Come with usage restrictions and expiry
- You can’t reasonably determine their value upon receipt — a key condition for being taxed as income.
- Case Insight (Shankar Iyer v. DCIT – ITAT Mumbai, 2013)
- While not a binding precedent for credit card points, in this case ITAT refused to tax frequent flyer miles earned on personal bookings: “The value was neither paid in cash nor readily convertible; hence, it’s not income chargeable to tax.”
- This reinforces the principle: receipt of non-cash rewards that are not readily convertible is not taxable.
So until the day the Income Tax Department starts asking “kitne points mile?”, relax. Swipe smart, earn rewards, and remember — if your card gives you joy but not cash, the taxman’s not interested. Yet. 😎
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