Just because you earn reward points and e-vouchers in exchange for products and services rendered, it won’t be out of tax ambit if they are held by the taxpayer under a legal framework.
The Income Tax Act defines two categories of reward points, which are not considered taxable income. They are the ones given by banks under specific customer schemes, and those earned on petrol and diesel purchases through pay-at-pump facilities.
The Income Tax Act defines two categories of reward points, which are not considered taxable income.
The Income Tax Act defines two categories of reward points, which are not considered taxable income. If a credit card company issues a reward point for the use of its credit card, no income is generated, and therefore it is not subject to tax. If a business gives a reward point for the purchase of goods or services, the amount given is considered part of the original purchase price and is therefore subject to tax. (If your employer gives you points as an incentive to use its credit card, that may be considered taxable income.)
For example, You buy a $1,000 sofa from a furniture store. It rewards you with 1,000 points which can be used toward future purchases. These points are not considered taxable income because they are issued in relation to the purchase of furniture on credit, since the store would give you no points if you paid cash.
On the other hand, if you go out for dinner at a restaurant with your friend and your friend pays for dinner with his credit card, but gives you 500 points as thanks for being his guest that night, you must declare that as income on line 104 of your tax return. The 500 points are equivalent to $5 in cash because they have monetary value and aren’t just an extension of the credit card.
Reward points on credit card
“The Cashback Card is a credit card that offers cash back rewards on every purchase you make. It also automatically gives you 1% back when you use it for gas or groceries and 5% back when you use it for restaurant purchases.” – The Cashback Card, Credit Cards
Reward points declared taxable
If you no longer need the phone but want the points back, you can do a gift card trade-in, and get a Costco cash card in return. I recommend doing it this week before they go to the new system. It will take some time because of the way Costco is handling it and it’s best to not wait until the last minute.
In my family, we have one account and have 4 phones on that account, so I am more than willing to give up my points for something else. Last year they offered 100% back on gift cards and I took advantage of that to buy a $250 Costco cash Card so I could use them for Christmas gifts.
In fact, I bought a $250 cash card from Costco today using my phone as a payment method, and then went online afterward and had the points refunded back to me.
There are also some other perks of having a Costco membership aside from saving money on gas and food. They offer great warranties on appliances, computers, etc., As well as free checkups and cleaning at their optical center (that alone is worth the price of admission).
If a person is holding reward points as an agent of another, then the value of points will not be taxable in his hands.
Reward points are important in many ways. The points that are earned by the customer while purchasing a commodity are not used by him alone but also benefit other customers as well. The major advantage of a reward point is that you get rewarded for every rupee spent on the purchase. So, if a person spends Rs. 100, he will get 100 points as a reward. If you use these reward points for your own purchases, then you can get many valuable products at low prices or almost free of cost. For example, if the price of the product is Rs. 200, then you can redeem your 200 points against this product and pay Rs. 0 to get it. In this way, you will be able to buy a high-value product at almost no cost with the help of reward points.
As per Section 56(2)(ix) of the Income Tax Act, any sum received from any person (other than a relative) on account of a gift is taxable. As per the definition of a relative, any company whose shares are more than 50% held by an individual is a relative of the individual.
Conclusion Reward Points:
The ITAT, however, ruled in favor of the assessees and asked the I-T department to not treat the reward points earned over telecom services as taxable. The court observed that there is a clear distinction between reward points given by banks under specific customer schemes and those earned on the use of telecom services.
What the court has said here is that the reward points offered by banks are exempted from tax on the grounds that they are tied to specific schemes, and the rationale behind this decision is that since products and services have been paid for (and therefore included in the overall taxable income), reward points have no material impact on the total income of an individual. Another explanation can be provided for this as well: as per Section 10(26) of the Income Tax Act, any reward points earned via credit or debit cards would be considered interest. The second type of reward point mentioned above depends upon petrol or diesel consumption, which could be considered as consumption under Section 2(48). This means that rewards on this account are also exempt from tax.
According to the Act, reward points given under customer schemes are not taxable even if they are earned “in consideration of a transaction carried out for a non-exempt purpose,” as long as certain criteria are met. The customer must earn the reward points in his or her personal account – not business accounts, or as part of a corporate rewards program. And in order for them to be tax-free, the customer must use the points within a year for an exempt service for himself or herself (that is, travel or dining)