Page 1 of 4
European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 04
April 2019
Available online: https://ejbss.org/ P a g e | 2343
Tax Implication of Cash Backs
KUNAL SHARMA
Asst. Professor, Department of Commerce, DAV College, Abohar.
Abstract
In today’s era whenever a person wants to pay the amount due to another person he has the
various other options such as through Debit card, Credit card, E-Wallets apart from physical
form of payment of money. Various mobile wallets companies as well as the banks provide
certain incentive to promote the use of their services. The effort has been made to study the
Income tax impact on these promotional activities offered by these mobile wallets as well as
various banks.
Key Words: Cash backs, E-Wallet, Gifts, Income tax.
Introduction
Income Tax is a tax levied on the income earn by the person in a previous year. It is an annual
tax which is charge on the income received under the various heads during a financial year. The
various heads of incomes are Salary, House Property, Business & Profession, Capital Gains and
income under the head Other Source.
In the recent times the technology has grown manifold, there are various websites and mobile
application has emerge which offer as a payment gateway for online payment for various
shopping websites, payment of various utilities bills, mobile prepaid and postpaid recharges and
others. Various banks also provide Net banking/ Credit cards through which a customer can avail
all the above mentioned services. In order to attract more customers these banks and mobile
wallets gives certain promotional schemes. Whether these incentives attract any income tax
liability or not is matter of discussion.
Objective of the study
1. To study the different kinds of incentive given by mobile wallets.
2. To study the tax implication on cash backs given by mobile wallets.
Concept of cash backs
Page 2 of 4
European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 04
April 2019
Available online: https://ejbss.org/ P a g e | 2344
After demonetization various E- Wallets emerge as a source of cashless payment to the vendors,
as well as these can be used for any online transaction. These E-Wallets looks lucrative to the
user also as they give certain benefits in form cash backs to the customers. Generally cash back
can be classified into two categories:-
1) Instant Cash back: This type of cash back is offered by the websites or E-wallets when a
person done a transaction using a debit card or credit card of a specific bank. For example
Amazon gives the instant discount of 10% maximum upto Rs.1,500 if any user purchase the
goods in promotional days by using HDFC Debit or Credit card. The amount of cashback
deducts out the invoice and customer needs to pay only the net amount due.
2) Deferred Cash back: Under this type of cash back the customer bank account is credited
by certain fixed amount after the expiry of specific period called as cooling period. For
example Flipkart offers to their customer a deferred cash back of 10% or Rs.2,000 if they
purchase the goods from their website using ICICI debit card with condition that cash back
will be credited to customers bank account after the expiry of 90days from the date of
purchase.
Whether these cash backs attract any income tax or not?
The first type of cash back i.e Instant cash backs are treated as instant discount as the user need
to pay only the net amount due after deduction of instant cash back. So, if the user purchases the
goods for his personal consumption he would not be attracted to any Income Tax. For the
business user the purchases would be shown at net amount paid or it may be shown as at price
before any discount and discount received would be treated as business income. If the person is a
salaried employee and get the reimbursement of expenses paid by him from his employer then
the position would be different if the employee gets the reimbursement of gross amount then the
cash back received by him would be treated as income under the head salary but if employee gets
the reimbursement of net amount paid nothing would be taxable subject to certain provision of
income tax Act.
But there is difference of opinion regarding taxability of deferred cash back some scholars are of
view that the deferred cash back would not attract any income tax as customer already knows
that he will get backs out of the money paid by him,so it is just like returning of his disposable
income, as a person goes on shop and give Rs.100 note for the goods purchase of Rs.80 and gets
Rs20 backs, Rs20 should not be considered as any type of income but treated as getting back of
disposable income hence would not attract to any income tax liability.
Page 3 of 4
European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 04
April 2019
Available online: https://ejbss.org/ P a g e | 2345
While some other scholars are of views that deferred cash backs should be treated as monetary
gift. When we look at the tax ability of monetary gifts under Income Tax Act,1962 Section 56(2)
states, “where any sum of money, received by individual or HUFthe aggregate value of which
exceeds fifty thousand rupees, is received without consideration, in any previous year from any
person or persons the whole of the aggregate value of such sum shall be treated as income under
the head Other source. Subject to certain exceptions such as
— (a) Received from any relative; or (b) on the occasion of the marriage of the individual83; or
(c) under a will or by way of inheritance; or (d) in contemplation of death of the payer; or (e)
from any local authority as defined in the Explanation to clause (20) of section 10; or (f) from
any fund or foundation or university or other educational institution or hospital or other medical
institution or any trust or institution referred to in clause (23C) of section 10; or (g) from any
trust or institution registered under section 12AA.
Explanation.—For the purposes of this clause, "relative" means— (i) spouse of the individual;
(ii) brother or sister of the individual; (iii) brother or sister of the spouse of the individual; (iv)
brother or sister of either of the parents of the individual; (v) any lineal ascendant or descendant
of the individual; (vi) any lineal ascendant or descendant of the spouse of the individual; (vii)
spouse of the person referred to in clauses (ii) to (vi);]
As it is clear from the above mentioned section that if the amount of monetary gifts doesn’t
exceed Rs.50,000 in aggregate it would not be treated as income under the head other source. For
an example if a person received Rs.5,000 as deferred cash back & received Rs.30,000 as an gift
from non relatives nothing shall be included in the income of the person as the amount doesn’t
exceed Rs.50,000. But the situation get different if the person get Rs.48,000 as an gift from non
relatives instead of 30,000.
Conclusion
As far as there are no such clear cut rules regarding the income tax treatment of cash back
received. The general tendency is no one bothers if the amount of cash backs received are
nominal but as the amount of cash backs increased income tax department comes into the action
so there is a need of clarity from the income tax department regarding the circumstances under
which the cash back attract the income tax. As the cash back system is fairly new in India but in
a country like America the IRS has already considered this issue. The type of reward and in the
way it is received by the individual decides the tax treatment of cash backs.
References
