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Taxation of Cashback

Updated on: May 28th, 2024

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1 min read

Nowadays owing to the increasing awareness of digitization and rapid growth of the e-commerce industry, the concept of Cashback is gaining a lot of importance. 

Types of Cashback

Instant Cashback

Such Cashbacks are applicable to the same transaction only. For instance, suppose there is an offer, and you book a cab through an online app to ride from point A to point B. The normal fare may be Rs 400, but due to the offer of instant cashback of Rs 100, the amount payable at the end of the trip will be Rs 300.

Deferred Cashback/Cashback referral

Such Cashbacks are applicable to the next transaction done. For instance, If you book a cab through an online app and you refer your friend, you will receive a cashback referral if your friend also books a cab through the same app. Now, such cashback referral earned can be used when you next book your cab.

Tax on Cashback For Business

Basically, we can interpret Cashback as the discount given against any expense/purchase made. Since it reduces the cash outgo whether applicable to the same transaction or the next transactions. So, in the case of a person doing business, if he wants to claim these expenses in his books then the expense net of instant cashback should be claimed.

If, in the example of instant cashback quoted above, a person wants to claim the expense of a cab as a conveyance in books, then Rs 300 should be claimed. In the case of deferred cashback, the transaction to which such cashback is applied should be claimed net of the cashback. If you are not doing any business or you are not claiming these expenses anywhere, then there is no specific accounting treatment of the cashback.

Tax on Cashback For Individuals

For individuals, cashback received as part of a purchase (e.g., from credit cards, e-wallets, or online shopping platforms) is generally not considered taxable income if it is in the form of a discount on the purchase price. However, if the cashback is received as a gift, reward, or incentive without a purchase, it may be taxable under the head “Income from Other Sources.”

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Frequently Asked Questions

How is cashback treated for individuals?

For individuals, cashback received as part of a purchase is not considered taxable income if it is in the form of a discount on the purchase price. However, it may be taxable under the head "Income from Other Sources."

What is the tax treatment for cashback received as part of a business transaction?

For businesses, cashback received is typically treated as a reduction in the cost of goods or services, thereby reducing the business expense. It is not treated as income. However, businesses must ensure proper accounting of such cashback to reflect the reduced cost.

What is the difference between cashback and discount in terms of taxation?

Cashback: Refers to a monetary reward or return received after a transaction. If considered an incentive or gift, it can be taxable as income.

Discount: Refers to a reduction in the price of goods or services at the time of purchase. Generally not taxable as income but reduces the purchase price.

Can cashback be considered a gift?

Cashback can be considered a gift if it is provided without a corresponding purchase. Gifts over a certain threshold (₹50,000 in a financial year) are taxable under "Income from Other Sources"

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