Cash back through credit, debit cards is taxable

K. ARAVIND

Customers sometimes receive a “cash back” after purchasing items with credit or debit cards. Some banks also have a fixed percentage refund scheme when using special cards.

This type of payment is as attractive to customers as the discount on the goods. But it is not like paying after deduction for goods, the customer gets a certain percentage of the money back. Those with taxable income are required to include the proceeds in their own income. That is, when calculating the tax, the money thus received must also be taken into account.

Most people do not pay attention to the tax return on their money. Since it is a small amount, it may not go unnoticed by the Income Tax Department. But with the salient advantages, you must know some of the disadvantages as well. Offerings such as 100% cashback are often offered when regular passengers book international airline tickets and foreign hotel rooms. When such a large amount is returned, it should be included in one’s own income and care should be taken to pay the tax.

Section 56 of the Income Tax Act provides for income from other sources such as refund. Most people do not consider it necessary to comment on such fabrications as cashback is usually a small amount. But a good taxpayer has to calculate the total cash back received in a financial year and include it in the category of income from other sources.

Unlike discounts on purchases, cashback is usually credited directly to a bank account. So it comes down to the calculated income.

Earlier, cashbacks and reward points were earned while using credit cards. Cashbacks and Reward Points are now offered when using debit cards as well. Some banks offer a fixed percentage of cash back on any transaction made using special debit cards.

Earlier, you had to buy special items from certain places to avail the discount using the bank’s reward points. But now some banks are adopting the practice of giving cashback directly to the savings account to attract customers.