Taxation of Cashback

Now-a-days 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. Cashback is basically of two types:

Instant Cashbacks

Such Cashbacks are applicable to the same transaction only. For instance, suppose there is an offer and you book a cab through some online app riding from point A to point B. The normal fare maybe 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 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.

Now, the question arises whether this cashback is your income or not? 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 next transactions. So, in 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 cab as a conveyance in books, then Rs 300 should be claimed. And in 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.

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