If the cashback received on digital payment or online shopping is of a large amount, then the Income Tax Department may consider it as “income from other sources”. Not mentioning expensive purchases or repeatedly receiving large amounts of cashback in ITR may result in a notice. Small cashbacks are generally not taxable but it is important to be cautious on large cashbacks.
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Cashback received after digital payment, online shopping or bill payment has become common nowadays. People consider it as a bonus or an easy way of saving. But now the Income Tax Department is also keeping an eye on such transactions. If you got a large amount of cashback and you did not show it in the income tax return, then there is a possibility of getting a notice.
When will cashback be considered taxable income?
According to tax rules, cashback can be put in the category of “income from other sources”, especially when its amount is large. Cashback received on expensive purchases like international flight tickets, luxury hotel bookings, expensive mobiles or gadgets can come under the purview of tax. If a person repeatedly transacts a large amount only to get cashback, then the department can also count it as income. Continuous cashback of a large amount coming into your account can also be a cause of suspicion.
According to a Mint report, in 2016, Rohit Singh, who works in a private company, was shocked when he received a notice from the Income Tax Department. The reason was a cashback of ₹2,500 that he received on a debit card transaction. Rohit did not consider it as taxable income and did not mention it in the return. But the department considered it as “income from other sources” and sent a notice. From this you can understand that even a small mistake can be the reason for a notice.
How to avoid tax notice?
- Keep a record of every cashback and cash transaction.
- If the amount is large, include it in your ITR.
- File income tax returns on time.
- Avoid depositing large amounts in cash repeatedly.
Is tax applicable on small cashbacks as well?
If the cashback is of a small amount like ₹50, ₹100 or ₹500 and is received on normal purchases or digital payments, then it is generally not considered taxable. Such cashbacks are seen as incentives or discounts. But it is important to be cautious about large and frequent cashbacks, as they can be considered part of income.
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